Saturday 28 October 2017

Southwest Milling Co. purchased a front-end loader to move stacks of lumber. The loader had a list price of $115,250. The seller agreed to allow a 6.00 percent discount because Southwest Milling paid cash.

Southwest Milling Co. purchased a front-end loader to move stacks of lumber. The loader had a list price of $115,250. The seller agreed to allow a 6.00 percent discount because Southwest Milling paid cash. Delivery terms were FOB shipping point. Freight cost amounted to $2,300. Southwest Milling had to hire a specialist to calibrate the loader. The specialist’s fee was $1,210. The loader operator is paid an annual salary of $18,700. The cost of the company’s theft insurance policy increased by $1,890 per year as a result of acquiring the loader. The loader had a four-year useful life and an expected salvage value of $6,100.
    
Required
a.
Determine the amount to be capitalized in an asset account for the purchase of the loader.

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 b. Record the purchase in general journal format.
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Explanation:
a. 
Discount: $115,250 × 6.00% = $6,915
The operator salary and increase in insurance are operating expenses.