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25 June, 13:31

Young Corp. purchased equipment by making a down payment of $4,000 and issuing a note payable for $18,000. A payment of $6,000 is to be made at the end of each year for three years. The applicable rate of interest is 8%. The present value of an ordinary annuity factor for three years at 8% is 2.58, and the present value for the future amount of a single sum of one dollar for three years at 8% is. 735. Shipping charges for the equipment were $2,000, and installation charges were $3,500. What is the capitalized cost of the equipment?

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  1. 25 June, 13:40
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    Total capitalized cost 24,980

    Explanation:

    The shipping and installation cost are capitalzied as they are cost needed to make the equipment ready to use.

    The down payment will be in his full amount as it is done "today".

    The the note, which is an annuity will be multiplied by the annuity factor

    and the note

    down payment: 4,000

    shipping charges 2,000

    installation 3,500

    6,000 annuity x 2.58 = 15,480

    Total capitalized cost 24,980
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