+1-415-670-9189
info@expertsmind.com
Cost of acquistion-capitalizable costs-current expense
Course:- Managerial Accounting
Reference No.:- EM1349755




Assignment Help
Assignment Help >> Managerial Accounting

The invoice of a machine is $40,000. Various other costs relating to the acquistion and installation of the machine including transportation, electrical wiring, special base, and so on amount to $7,500. The machine has an estimated life of 10 yrs, with no residual value at the end of that period.

The owner of the business suggests that the incidental costs of $7,500 be charged to expense immediately for the following reasons:

1. If the machine should be sold, these costs can not be recovered in the sales price.

2. The inclusion of the $7,500 in the machinery account on the books will not necessarily result in a closer approximation of the market price of this asset over the years, because of the possibility of changing demand and supply levels.

3. Charging the $7,500 to expense immediately will reduce federal income taxes.

Instructions:

Discuss each of the points made by the owner of the business.




Put your comment
 
Minimize


Ask Question & Get Answers from Experts
Browse some more (Managerial Accounting) Materials
Why are companies required to prepare a statement of cash flows? Why is the statement of cash flows divided into three sections? What does each section tell you about the
Ash Creek Company is preparing its master budget for 2014. Relevant data pertaining to its sales, production, and direct materials budgets are as follows. Prepare the sales,
"In my opinion, it will be a mistake if that new plant is built," said Carl Roberts, controller of Tanka Toys. "Why, if that plant was in existence right now, we would be repo
Refer to the current information for Bay Area Cycle Co. in Mini-Exercise 12.4. In Mini-Exercise 12.4, Current operating income for Bay Area Cycles Co. is $70,000. Selling pric
Refer to the data in Problem. Estimate the cash from operations expected in year 2.In Problem, Cameron Parts has the following data from year 1 operations, which are to be use
Do you think that the tax minimization scheme described to Debbie Kishimoto is in harmony with the ethical behavior that should be displayed by top corporate executives? Why
Describe cost-volume-profit analysis, including the explanation of the calculation and components. In what three ways can the contribution margin be useful in cost-volume-pr
Stang Sports Equipment Company made 40,000 basketballs in a given year. Its manufacturing costs were $288,000 variable and $95,000 fixed. Suppose that no price changes will