The invoice price of a manufacturing machine is $1,600,000. The company incurred other costs relating to...

The invoice price of a manufacturing machine is $1,600,000. The company incurred other costs relating to the acquisition and installation of the machine (freight-in, wiring, labor for installation, etc.) that totaled $18,500. Management estimates that the machine has a 7-year life with no residual value. The chief executive officer, in a conversation with the chief financial officer, suggests that the incidental costs of $18,500 should be expensed immediately, and offered the following rationale:

A. If the machine was sold, the incidental costs could not be recovered in the sales price.

B. The inclusion of the $18,500 in the machinery account in the general ledger will not necessarily result in a reasonably close approximation of a market price of the asset in the future, because of the possibility of changing supply and demand levels.

C. Charging the $18,500 to expense immediately will reduce both federal and state income taxes.

As an external consultant with accounting expertise, prepare a brief memo, outlining the proper recognition according to US GAAP. Be sure to address the rationales provided by the chief executive officer.

Expert Solution

ekkarill92 answered 1 year ago

Mason Ltd. purchased, for cash, equipment with an invoice price of $90,000. Other costs incurred were...

Mason Ltd. purchased, for cash, equipment with an invoice price of $90,000. Other costs incurred were freight costs, $1,400; insurance while the equipment was in transit, $1,200; material and labour costs in testing equipment, $2,000; oil lubricants and supplies to be used while operating the equipment, $850; annual fire insurance policy covering equipment after it was put in use, $900; import duties $400. The equipment is estimated to have an $8,000 residual value at the end of its 10-year useful...

Aurora Company is considering the purchase of a new machine. The invoice price of the machine...

Aurora Company is considering the purchase of a new machine. The invoice price of the machine is $123,000, freight charges are estimated to be $4,000, and installation costs are expected to be $5,000. Salvage value of the new equipment is expected to be zero after a useful life of 5 years. Existing equipment could be retained and used for an additional 5 years if the new machine is not purchased. At that time, the salvage value of the equipment would...

Ash Company incurred direct materials costs of $1,600,000 during the year. Direct Labor costs were $600,000....

Ash Company incurred direct materials costs of $1,600,000 during the year. Direct Labor costs were $600,000. Manufacturing overhead was applied at the rate of 70% of direct labor costs. What were Ash Company’s total manufacturing costs for the year? Superior Painting Company has the following production data for January: · Beginning work in process, 0 units · Units transferred out, 35,000 · Units in ending work in process, 10,000, which are 45% complete for conversion costs Materials are added only...

Luang Company is considering the purchase of a new machine. Its invoice price is $122,000, freight...

Luang Company is considering the purchase of a new machine. Its invoice price is $122,000, freight charges are estimated to be $3,000, and installation costs are expected to be $5,000. Salvage value of the new machine is expected to be zero after a useful life of 4 years. Existing equipment could be retained and used for an additional 4 years if the new machine is not purchased. At that time, the salvage value of the equipment would be zero. If...

Eagle Manufacturing has incurred the following machine maintenance costs over the first half of 2018: Month...

Eagle Manufacturing has incurred the following machine maintenance costs over the first half of 2018: Month Machine Hours Cost ($) January 10,000 15,500 February 15,000 16,233 March 12,750 15,985 April 13,268 16,025 May 9,256 11,159 June 10,335 15,117 Required: Using the High – Low method compute: a. The variable cost component of the Maintenance Costs. b. The fixed cost component of the Maintenance Costs. c. The total Maintenance Costs for the month of July, which is projected to use 13,295...

Appen Ltd. incurred fixed manufacturing costs of $25,000 during 2020. Other information for 2020 includes: ...

Appen Ltd. incurred fixed manufacturing costs of $25,000 during 2020. Other information for 2020 includes: The budgeted denominator level is 2,500 units. Units produced total 2,600 units. Units sold total 1,600 units. Variable cost per unit is $5 Beginning inventory is zero. The fixed manufacturing cost rate is based on the budgeted denominator level. There is no spending variance for fixed manufacturing cost. Under absorption costing, calculate the production-volume variance. Clearly label whether the variance...

Rock Shop Manufacturing Company makes specialty tools. In July, Rock Shop incurred manufacturing costs of $4,000,000...

Rock Shop Manufacturing Company makes specialty tools. In July, Rock Shop incurred manufacturing costs of $4,000,000 for direct materials, direct labour, and overhead. 30% of the total costs represents overhead applied. The overhead rate is $1 for every $0.50 of direct labour costs incurred. Inventory balances were: July 1 / July 31 Raw materials $100,000 / $ 80,000 Work in process 90,000 / 95,000 Finished goods 120,000 / 130,000 Instructions a) Determine the cost of raw materials purchased in July....

Sterling Products Company uses a job- order costing system. The company incurred the following manufacturing costs...

Sterling Products Company uses a job- order costing system. The company incurred the following manufacturing costs during March: a. Purchased materials on credit,$58,800. b. Issued materials to production as follows: direct,$51,000; indirect,$111,300. c. Incurred factory wages,$59,400. d. Allocated factory wages to production as follows: direct,$45,000;indirect,$14,900. e. incurred factory overhead costs on account,$2,500. f. Recognized other factory overhead costs as follows: depreciation of equipment,$4,00; depreciation of building,$5,000;expired insurance,$600; accrued property taxes, $1,800. g. Applied factory overhead to production,$32,500. h. completed jobs...

Sandhill Limited purchased a machine on account on April 2, 2018, at an invoice price of...

Sandhill Limited purchased a machine on account on April 2, 2018, at an invoice price of $332,220. On April 4, it paid $2,170 for delivery of the machine. A one-year, $3,960 insurance policy on the machine was purchased on April 5. On April 18, Sandhill paid $7,840 for installation and testing of the machine. The machine was ready for use on April 30. Sandhill estimates the machine’s useful life will be five years or 6,153 units with a residual value...

Crane Limited purchased a machine on account on April 1, 2021, at an invoice price of...

Crane Limited purchased a machine on account on April 1, 2021, at an invoice price of $325,020. On April 2, it paid $1,820 for delivery of the machine. A one-year, $3,940 insurance policy on the machine was purchased on April 5. On April 19, Crane paid $8,150 for installation and testing of the machine. The machine was ready for use on April 30. Crane estimates the machine’s useful life will be five years or 6,326 units with a residual value...

Question