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Determine cost of an asset

Northeast Logging Co. of $120,000. The seller agreed to allow a 5 percent discount because Northeast paid cash. Delivery terms were FOB shipping point. Freight cost amounted to $2,500. Northeast had to hire an individual to operate the saw. Northeast had to build a special platform to mount the saw. The cost of the platform was $1,000. The saw operator was paid an annual salary of $40,000. The cost of the company's theft insurance policy increased by $2,000 per year as a result acquiring of the saw. The saw had a four-year useful life and an expected salvage value of 10,000.

a. Determine the amount to be capatilized in an asset account for the purchase of the saw.
b. record the purchase in general journal format

Solution Preview

Please see the attached file.

Details Amount
Cash price of Saw $120000
Less: Cash discount @5% 6000
Add: Freight (FOB shipping point)
Add: Cost of Special plant 2500
Cost of Saw $117500

1 Cost of Saw consists of purchase price, Freight and insurance ...

Solution Summary

The solution determines the cost of assets for Northeast Logging Co.