A capital acquisitions manager recently purchased equipment needed to begin production of new inventory. The listed purchase cost of the equipment from a vendor was $70,000. In addition, six other costs related to the equipment were incurred at the time of acquisition and in the first month of operations. These six related costs are displayed in the illustration Purchase Cost of Equipment and Six Related Costs Total = $110,000
Purchase Cost $70,000
1. Sales Tax $5,600
2. Shipping and Handling $6,200
3. Installation and Preparation $12,700
Purchase Cost of Equipment and Six Related Costs Total = $110,000
Purchase Cost $70,000
1. Sales Tax $5,600
2. Shipping and Handling $6,200
3. Installation and Preparation $12,700
4. Testing and Safety Inspection $8,400
5. Employee Training for Operations
5. Employee Training for Operations $5,500
6. Maintenance for First Month of Operations $1,600
Required:
1. Which costs represent normal costs that are necessary to get the asset in condition and location for its intended use?
2. Which costs typically would be related to operating the equipment once it's in use?
3. Record the summary entry for the $110,000 of expenditures related to the equipment (Assume all costs were paid in cash Employee training is incurred through salary costs.)