Question

Trinkle Company made several purchases of long-term assets during the year. The details of each purchase are presented here.

New Office Equipment

1. List price: $44,200; terms: 2/10, n/30; paid within the discount period.

2. Transportation-in: $770.

3. Installation: $440.

4. Cost to repair damage during unloading: $457.

5. Routine maintenance cost after eight months: $190.

Basket Purchase of Copier, Computer, and Scanner for $53,800 with Fair Market Values

1. Copier, $27,864.

2. Computer, $9,072.

3. Scanner, $27,864.

Land for New Warehouse with an Old Building Torn Down

1. Purchase price, $80,200.

2. Demolition of building, $5,050.

3. Lumber sold from old building, $2,720.

4. Grading in preparation for new building, $8,200.

5. Construction of new building, $267,000.

Required

In each of these cases, determine the amount of cost to be capitalized in the asset accounts.

Asset	Allocated Costs	Total
Office equipment
Basket purchase:
Copier
Computer
Scanner
Total cost to be capitalized
Land and building:
Cost of land
Construction costs
Total cost to be capitalized

Answer 1

New office equipment:

Amount of cost to be capitalized in the asset accounts=$44200×.98+$770+$440+$457 =$44983

Routine maintenance cost will be taken to P&L

Basket purchase of copier computer, and scanner

Amount of cost to be capitalized in the asset accounts=fair market values

=$27864+$9072+$27864 =$64800

The difference between fair value and purchase price will be recorded as a gain on its income statement.

Land for new warehouse with an old building torn down

All the costs and sales will be considered

Amount of cost to be capitalized in the asset accounts = $80200+$5050-$2720+$8200+$267000 =$357730

The general rule is that all costs to bring the asset to usable form will be capitalized. The company follows fair value accounting of assets.