Question
In: Finance
Tonga Corporation incurred the following expenditures to purchase a new machine: $100,000 purchase price, $12,000 for...
Tonga Corporation incurred the following expenditures to purchase a new machine: $100,000 purchase price, $12,000 for delivery of the machine, $5,000 for installation and testing of the machine, $4,000 to train staff to run the machine. In addition, the firm paid $2,000 to reinforce the factory floor to support the machine’s weight. They also paid $20,000 to repair the factory roof, extending the life of the factory by 4 years and $10,000 to create office space for the supervisor of the factory area. The capitalized value of the machine on the firm’s books would be closest to
Group of answer choices
A) $117,000
B) $119,000
C) $121,000
D) $137,000
Solutions
Expert Solution
The items to include in the capitalized value are :
- Purchase price
- Delivery
- Installation
- Training cost
These items are included because they are directly attributable to the cost of the machine, and the benefits of these costs are received over the life of the machine.
However, factory repair and office space cost are not included because they are not directly attributable to the cost of the machine.
The capitalized value = $100,000 + $12,000 + $5,000 + $4,000
The capitalized value = $121,000
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