Determining the Cost of Plant Assets and Depreciation Hamlet College recently pu
ID: 3886479 • Letter: D
Question
Determining the Cost of Plant Assets and Depreciation
Hamlet College recently purchased new computing equipment for its library. The following information refers to the purchase and installation of this equipment:
1. The list price of the equipment was $285,000; however, Hamlet College qualified for an “education discount” of $25,000. It paid $50,000 cash for the equipment, and issued a three-month, 9 percent note payable for the remaining balance. The note, plus accrued interest charges of $4,500, was paid promptly at the note’s maturity date.
2. In addition to the amounts described in 1, Hamlet paid sales taxes of $15,000 at the date of purchase.
3. Freight charges for delivery of the equipment totaled $1,000.
4. Installation costs related to the equipment amounted to $5,000.
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5. During installation, one of the computer terminals was accidentally damaged by a library employee. It cost the college $500 to repair this damage.
6. As soon as the computers were installed, the college paid $4,000 to print admissions brochures featuring the library’s new, state-of-the-art computing facilities.
Instructions
a. In one sentence, make a general statement summarizing the nature of expenditures that qualify for inclusion in the cost of plant assets such as computing equipment.
b. For each of the six numbered paragraphs, indicate which items should be included by Hamlet College in the total cost added to its Computing Equipment account. Also briefly indicate the proper accounting treatment of those items that are not included in the cost of the equipment.
c. Compute the total cost added to the college’s Computing Equipment account.
d. Prepare a journal entry at the end of the current year to record depreciation on the computing equipment. Hamlet College intends to depreciate this equipment by the straight-line method (half-year convention) over an estimated useful life of five years. Assume a zero residual value.
Explanation / Answer
Answer:
The quantity paid or payable in the direction of bring an asset at present place and working condition have to be capitalized
The list cost of the gear was $285,000; though, Hamlet school meet the criterion for an "education reduction" of $25,000. It paid $50,000 cash for the kit and issued a three-month, 9 percent note payable intended for the outstanding balance. The letter, plus accrue interest charge of $4,500, be paid punctually at the note's adulthood day
Actual quantity payable for kit is after money off = 285000 - 25000 = 260,000, so 260,000 have to be capitalized (included in value of advantage). Accrued attention will not be part of equipment because it is finance cost and it should exist record as an expense.
In adding up to the amounts describe in 1, Hamlet waged sales tax of $15,000 at the date of acquire.
If we assume so as to sales tax contribution credit is not available than $ 15,000 have to be included in value of advantage because it be part of price.
3 Freight charge for delivery of the equipment totalled $1,000
Freight charges is an expenditure related to bring an asset at its present site so it should be included in gear value
Damage charges is not connected to normal acquisition cost, so it should be be well-known by means of as an cost.
This cost is not directly related to getting hold of plus point so, it have to be distinguish seeing that an expense.
Answer:c
4 Installation overheads related to the utensils amounted to $5,000
5 During setting up, one of the computer terminal was accidentally injured by a library worker. It cost the college $500 to repair this harm
Answer d:
total depreciation for one year = 281000/5 years = 56200
but it is half year convention, so depreciation will be recognized this year will be 50% of 1 year depreciation = 56200 x 50% = 28100
Journal entry will be as follows,Depreciation expense on equipment A/c Dr. 28100
To Accumulated Depreciation on Equipment A/c 28100
s.no practicular Treatment 1The list cost of the gear was $285,000; though, Hamlet school meet the criterion for an "education reduction" of $25,000. It paid $50,000 cash for the kit and issued a three-month, 9 percent note payable intended for the outstanding balance. The letter, plus accrue interest charge of $4,500, be paid punctually at the note's adulthood day
Actual quantity payable for kit is after money off = 285000 - 25000 = 260,000, so 260,000 have to be capitalized (included in value of advantage). Accrued attention will not be part of equipment because it is finance cost and it should exist record as an expense.
2In adding up to the amounts describe in 1, Hamlet waged sales tax of $15,000 at the date of acquire.
If we assume so as to sales tax contribution credit is not available than $ 15,000 have to be included in value of advantage because it be part of price.
33 Freight charge for delivery of the equipment totalled $1,000
Freight charges is an expenditure related to bring an asset at its present site so it should be included in gear value
4 During setting up, one of the processor terminals are accidentally injured by a library member of staff. It cost the college $500 in the direction of repair this harm.Damage charges is not connected to normal acquisition cost, so it should be be well-known by means of as an cost.
5 As soon as the computer were installed, the school paid $4,000 to print admission fliers featuring the libraries new, state of the painting computing facilitiesThis cost is not directly related to getting hold of plus point so, it have to be distinguish seeing that an expense.
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