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Somerset Company acquired a piece of equipment with a list price of $200,000 for $176,000. Freight...

Somerset Company acquired a piece of equipment with a list price of $200,000 for $176,000. Freight to Somerset's location was $6,000. Installation and testing costs were $6,500. An old piece of equipment was scrapped as a result of this new purchase. The old piece of equipment had an undepreciated value (net book value) of $8,000. The new piece of equipment is expected to have a 10 year life and a salvage value of $15,000. What is the total value assigned to the new piece of equipment?

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Answer #1

Answer:

Value to be assigned to the new piece of equipment is as follows:-

Acquisition Cost of Equipment $ 176000

Freight Paid $ 6000

Installation and Testing Cost $ 6500

Therefore Total Cost of equipment $ 188500

As per provisions cost of asset included purchase price and other cost which is directly attributable to it. And also list price is of no use for calculating cost of asset , purchase price is considered. So accordingly value of new equipment is $ 188500.

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