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16 March, 10:08

Salvia Company recently purchased a truck. The price negotiated with the dealer was $48,000. Salvia also paid sales tax of $3,600 on the purchase, shipping and preparation costs of $4,600, and insurance for the first year of operation of $5,600. At what amount should the truck be recorded on the balance sheet prior to recording depreciation expense

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  1. 16 March, 11:57
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    The amount at which the truck should be recorded in the books is $56200

    Explanation:

    The cost of an a fixed asset to be recorded should include the cost incurred to purchase the asset along with any costs incurred to bring the asset to the location and in the condition necessary for use as intended by the management. The costs that are capitalized along with the purchase costs are usually of non recurring nature.

    The cost at which the truck should be recorded is,

    Purchase Price $48000

    Sales Tax paid $3600

    Shipping & preparation cost $4600

    Total cost $56200

    The sales tax, if it is not refundable, should be capitalized.

    The transportation and site preparation costs are necessary to bring the asset to the location and condition necessary for use as intended by management. Thus, it should be capitalized.

    The insurance is a revenue and recurring expenditure and asset can be used without it. Thus, it is not recorded.
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