Author Question: Queue, Incorporated incurred the following expenditures for the purchase and use of a machine, which ... (Read 677 times)

oliviahorn72 · **on:** Jul 5, 2018

Queue, Incorporated incurred the following expenditures for the purchase and use of a machine, which was placed into service on January 1, 2011:

Expenditure Amount
invoice price of the machine 144,000
transportation costs 23,000
inspection, moving and handling 6,500
installation and testing 12,300
power and other operating costs for using the machine during the year
43,000

Required:
1. Determine the total costs that should be capitalized into the machine account. What is the total? Explain how you decided which costs to capitalize.
2. Determine the total operating expenses associated with using the machine for the year ended December 31, 2011. Assume the machine has an estimated 5-year useful life and an 8,000 salvage value. Explain how you decided which costs to expense.

Question 2

Allowance for Doubtful Accounts is a liability account.
a. True
b. False

Indicate whether the statement is true or false

welcom1000 · **Reply #1 on:** Jul 5, 2018

Answer to Question 1

1. The costs that should be capitalized into the machine account include all costs that are reasonable and necessary to place the machine in working condition. In this case, the invoice price plus the transportation costs plus the inspection, moving and handling costs plus the installation and testing costs should all be included. The total is 185,800.
2. The expenses associated with the machine for the year would include the 43,000 of power and other operating costs that are NOT capitalized at the time the machine is purchased. In addition, the machine will be depreciated as part of the normal adjusting entries. The cost of the machine 185,800 minus 8,000 in salvage value divided by 5 years equals 35,560 depreciation expense per year. Total operating expenses for 2011 are 78,560.

Answer to Question 2

False