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Unformatted text preview: balance sheet.
Acquisition Cost: Net cash (or cash equivalent) paid for an asset. Includes all costs to get the asset
ready for its intended use. Asset can be purchased using cash, using debt, or using equity. Example: Cainas Cookies decides to purchase a delivery van, in order to deliver specialty cookie baskets
around the Tampa Bay area. The cost of the van was $20,000, and sales tax was $140. She then has
custom cabinets built into the van, to help keep the cookie baskets secure when they are being
transported, for a cost of $2,000. On her first delivery, Cainas had a flat tire and had to replace it at a
cost of $200. During the first year of operations, she maintains the van (oil change, tire rotation, etc) at
a cost of $300. What amount should be capitalized on the balance sheet as "Equipment"?
Delivery Van: $22,140 ($20,000 + $140+ $2,000)
Only costs that get it ready for its intended use in operations! Repairs and maintenance costs (tire
replaced, oil changes, etc) are period costs and expensed on the income statement as these...
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