Question

On January 1, Wasson Company purchased new equipment for $52,000 by paying cash. Other costs associated with the equipment were: transportation costs of $1,400; sales tax paid $3,400; installation cost of $2,900; and insurance cost of $1,000 for the first year of use. At what amount will the equipment be recorded on a balance sheet

Answer 1

• All costs incurred to make the asset operational are included in the cost of that asset to be shown in Balance Sheet.
• This includes ALL COST upto the point of installation.
• Calculation:
  Amount at which the equipment be recorded on a balance sheet
  = $ 52000 purchase cost + $ 1400 transportation cost + $ 3400 sales tax + $ 2900 installation cost
  = $ 59,700 Answer
• Note: Insurance cost for the first year will not be included in the cost of equipment. It will be expenses during the first year as ‘insurance expense’.
  Had it been the ‘insurance during transit’ of equipment, then that insurance cost would have been included in the cost of equipment.