Exercise 8-1 Cost of plant assets LO C1 Rizio Co. purchases a machine for $12,90

Question

Exercise 8-1 Cost of plant assets LO C1 Rizio Co. purchases a machine for $12,900, terms 2/10, n/60, FOB shipping point. The seller prepaid the $292 freight charges, adding the amount to the invoice and bringing its total to $13,192. The machine requires special steel mounting and power connections costing $892. Another $421 is paid to assemble the machine and get it into operation. In moving the machine to its steel mounting, $340 in damages occurred. Materials costing $40 are used in adjusting the machine to produce a satisfactory product. The adjustments are normal for this machine and are not the result of the damages. Complete the below table to calculate tho cost recorded for this machine. (Rizio pays for this machine within the cash discount period.) :

Explanation / Answer

Amount Included in Cost of Equipment Invoice price of machine $12,900 Cash Discount 2% -$258 Net Purchase price $12,642 Freight Charges $292 Special steel Mounting and Power Connections $892 Assembling cost $421 Damages $340 Total Cost to be recorded $14,587 All cost incurred upto the point the machine is put to use is to be capitalised. Material used in adjusting the machine to produce a satisfactory product is the part of normal maintenance activity , hence should be expense out during the period.

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