Bavarian Purity Corporation purchased equipment for $32,000.Bavarian Purity also paid $400 for freight and insurance while the equipment was in transit.Sales tax amounted to $240.Insurance,taxes,and maintenance the first year of use cost $1,000.How much should Bavarian Purity Corporation capitalize as the cost of the equipment?

Question

Quizplus · Accepted Answer

The cost of the equipment should include the purchase price, plus any costs incurred to get it ready for use. In this case, the purchase price is $32,000, and there are additional costs of $400 for freight and insurance, and $240 for sales tax, for a total cost of $32,640 (Option C). The maintenance, taxes, and insurance costs incurred in the first year should be expensed as they occur and are not included in the capitalized cost of the equipment.

Bavarian Purity Corporation Purchased Equipment for $32,000