Bad Brads BBQ purchased a piece of equipment by paying $5,000 cash.They also incurred a shipping cost of $400 to get the equipment to its factory.The fair value of this equipment is $7,000.For what amount should Bad Brads BBQ record the equipment?

Question

Quizplus · Accepted Answer

When recording the cost of an asset, it is important to include any additional costs necessary to get the asset to its usable condition. In this case, Bad Brads BBQ paid $5,000 in cash for the equipment and also incurred a shipping cost of $400 to get it to their factory. Therefore, the total cost of the equipment is $5,000 + $400 = $5,400. While the fair value of the equipment may be $7,000, this is not relevant when recording the cost of the asset. Therefore, the correct amount to record for the equipment is $5,400.

Bad Brads BBQ Purchased a Piece of Equipment by Paying