Question

United Van Lines purchased a truck with a list price of $250,000 subject to a 6 percent discount if paid within 30 days. United Van Lines paid within the discount period. It paid $4,000 to obtain title to the truck with the state and an $800 license fee for the first year of operation. It paid $1,500 to paint the firm’s name on the truck and $2,500 for property and liability insurance for the first year of operation. What acquisition cost of this truck should United Van Lines record in its accounting records? Indicate the appropriate accounting treatment of any amount not included in acquisition cost.

Answer 1

The acquisition cost of truck is $240,500

(250,000-15000+4000+1500)

The acquisition cost includes all capital expenditure incurred to get the truck into working condition.

Here, it includes the original cost of truck 250,000.

The discount of 6% (15000) should be deducted.

The paint on firms name in truck 1500 is included in the cost.

The title of truck 4000 being one time expense is also included.

The licence fee and property and liability insurance are paid every year.. They are revenue expenditure, hence not included in acquisition cost.