Exercise 10-4 - Construction Material and purchased...

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EXERCISE 10-4 (20–25 minutes) Purchase Cash paid for equipment, including sales tax of $5,000 $105,000 Freight and insurance while in transit 2,000 Cost of moving equipment into place at factory 3,100 Wage cost for technicians to test equipment 4,000 Special plumbing fixtures required for new equipment 8,000 Total cost $122,100 The insurance premium paid during the first year of operation of this equipment should be reported as insurance expense, and not be capitalized. Repair cost incurred in the first year of operations related to this equipment should be reported as repair and maintenance expense, and not be capitalized. Both these costs relate to periods subsequent to purchase.
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Unformatted text preview: Construction Material and purchased parts ($200,000 X .98) $196,000 Labor costs 190,000 Overhead costs 50,000 Cost of installing equipment 4,400 Total cost $440,400 Note that the cost of material and purchased parts is reduced by the amount of cash discount not taken because the equipment should be reported at its cash equivalent price. The imputed interest on funds used during construction related to stock financing should not be capitalized or expensed. This item is an opportunity cost that is not reported. Profit on self-construction should not be reported. Profit should only be reported when the asset is sold. 10-18...
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Exercise 10-4 - Construction Material and purchased...

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