A machine was purchased at an invoice price of $30,000, subject to a 2 percent cash discount if paid within 10 days. Installation of the machine cost $500. Costs incurred in testing the machine were $80 for the operator's time and $150 for materials. The discount was lost because of late payment of the invoice. Provincial sales tax on invoice price, 4 percent, and amortization during the testing period was $200. The cost that should be recorded for the machine is:

Question

Quizplus · Accepted Answer

Invoice price of the machine = $30,000
Cash discount = 2% of $30,000 = $600
Installation cost = $500
Cost for testing the machine (operator's time + materials) = $80 + $150 = $230
Provincial sales tax on invoice price = 4% of $30,000 = $1,200
Amortization during the testing period = $200

Total cost = Invoice price + Installation cost + Cost for testing + Sales tax + Amortization
= $30,000 + $500 + $230 + $1,200 + $200
= $31,130

Since the discount was lost due to late payment, we do not deduct the cash discount from the total cost. Therefore, the cost that should be recorded for the machine is $31,130, which is closest to choice C ($31,330).

A Machine Was Purchased at an Invoice Price of $30,000