Post, Freight and Carriers

ACCOUNTING QUESTION ANYONE?

Pine Logging Co. purchased an electronic saw to cut various types and sizes of logs. The saw had a list price of $160,000. The seller agreed to allow a 5 percent discount because Pine paid cash. Delivery terms were FOB shipping point. Freight cost amounted to $4,200. Pine had to hire an individual to operate the saw. Pine had to build a special platform to mount the saw. The cost of the platform was $2,500. The saw operator was paid an annual salary of $65,000. The cost of the company's theft insurance policy increased by $2,000 per year as a result of the acquisition of the saw. The saw had a four-year useful life and an expected salvage value of $10,000. Determine the amount to be capitalized in an asset account for the purchase of the saw.

Public Comments

1. 160,000 X .95 = $152,000 plus Freight cost of $4,200 plus platform cost of $2,500 Equals $158,700 That's the amount you capitalize The insurance cost and the operator cost are not included in the calculation The salvage value is only used for the calculation of the annual depreciation expense and not in the calculation of the amount to be capitalized