John purchases a truck for his hardware business in Utah. The price of the truck $18,000. The truck is located in Alabama so John must pay $1,000 to ship the truck up to Utah. When John registered the car for the first time, he paid $1,150 of tax for the purchase of the truck and his annual registration fees of $100. John also took the truck to an auto paint shop where he paid $500 to get his company logo painted on the side.
What is value that the truck is recorded on John's books?
Question 1 options:
|
18,000 |
|
|
19,000 |
|
|
20,050 |
|
|
20,650 |
|
|
20,750 |
Correct answer-----------$20,650
Working
| Calculation of cost of truck to be capitalized | |
| Price of truck | $ 18,000.00 |
| Shipping cost | $ 1,000.00 |
| Tax | $ 1,150.00 |
| Painting of logo | $ 500.00 |
| Total cost of truck to be capitalized | $ 20,650.00 |
All the above cost are necessary to bring truck to its working condition.
In purchase of Fixed asset all cost that are necessary to bringing the asset for its intended use are recorded as cost of that asset and which increase the useful value of asset. In the above cash annual annual registration fee will not be capitalized since that fee is annual charge and will be directly charged to income statement.
Please leave a comment in case of any confusion or query.
Get Answers For Free
Most questions answered within 1 hours.