On August 28, 2014, Saturn Drilling Services purchased a machine with a contract price of $400,000 and cash terms of 2/10, n/30. The company paid $8,000 in transportation costs and $8,000 for installation. Sales taxes of $22,000 were paid on the invoice amount. The machine should be recorded as a plant asset in the amount of

Question

Quizplus · Accepted Answer

The machine should be recorded at the total cost necessary to acquire and prepare it for use. This includes the contract price minus any discounts, plus transportation, installation, and sales taxes. The discount is $8,000 (2% of $400,000), so the net contract price is $392,000. Adding transportation ($8,000), installation ($8,000), and sales taxes ($22,000) gives a total of $430,000.

On August 28, 2014, Saturn Drilling Services Purchased a Machine