Question

Bahama Catering purchased a commercial dishwasher by paying cash of $8,000. The dishwasher's fair value on the date of the purchase was $10,000. The company incurred $600 in transportation costs, $500 installation fees, and paid $300 annual insurance of the equipment. For what amount will Bahama record the dishwasher?

a. $9,100.
b. $8,000.
c. $9,400.
d. $10,000.

Answer 1

a. $9,100

Step-by-step explanation:

The amount to be recognized as the cost of an asset (in this case the dishwasher) is the cost incurred to purchase the asset and other expenses to bring it to a ready to use state.

in this case the cost of transportation and installation cost are necessary to bring it the state where it can be used. While the insurance cost will be expensed to the P & L account.

Answer 2

A. $9,100.

Step-by-step explanation:

$8,000 + $600 + $500 = $9,100

The annual insurance on the equipment of $300 should be recorded as insurance expense over the first year of coverage.