During the current year, Adrienne Company purchased a second hand machine at a price of P5,000,000. A cash payment of P1,000,000 was made and a two-year, noninterest bearing note was issued for the balance of P4,000,000. Recent transactions involving similar machine indicate that the used machine has a second hand market value of P4,500,000. A new machine would cost of P6,500,000. The following costs were incurred during the year. Cost of removing old machine that is replaced Cash proceeds from the sale of the old machine replaced General overhaul and repairs to recondition machine prior to use Cost of spare parts to cover breakdown 350,000 100,000 220,000 80,000 Cost of installation 180,000 Cost of testing machine prior to use Cost of hauling the machine from vendor to entity premises Cost of repairing damage to machine caused when the machine was dropped during installation 150,000 40,000 50,000 Repairs incurred during the first year of operation Safety device added to the machine Cost of training workers to operate the machine 160,000 300,000 25,000 What amount should be capitalized as cost of the second hand machine?

During the current year, Adrienne Company purchased a second hand machine at a price of P5,000,000. A cash payment of P1,000,000 was made and a two-year, noninterest bearing note was issued for the balance of P4,000,000. Recent transactions involving similar machine indicate that the used machine has a second hand market value of P4,500,000. A new machine would cost of P6,500,000. The following costs were incurred during the year. Cost of removing old machine that is replaced Cash proceeds from the sale of the old machine replaced General overhaul and repairs to recondition machine prior to use Cost of spare parts to cover breakdown 350,000 100,000 220,000 80,000 Cost of installation 180,000 Cost of testing machine prior to use Cost of hauling the machine from vendor to entity premises Cost of repairing damage to machine caused when the machine was dropped during installation 150,000 40,000 50,000 Repairs incurred during the first year of operation Safety device added to the machine Cost of training workers to operate the machine 160,000 300,000 25,000 What amount should be capitalized as cost of the second hand machine?

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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Question

During the current year, Adrienne Company purchased a second hand machine at a price of
P5,000,000. A cash payment of P1,000,000 was made and a two-year, noninterest bearing note was
issued for the balance of P4,000,000. Recent transactions involving similar machine indicate that the
used machine has a second hand market value of P4,500,000. A new machine would cost of
P6,500,000. The following costs were incurred during the year.
Cost of removing old machine that is replaced
Cash proceeds from the sale of the old machine replaced
General overhaul and repairs to recondition machine prior to use
Cost of spare parts to cover breakdown
350,000
100,000
220,000
80,000
Cost of installation
180,000
Cost of testing machine prior to use
Cost of hauling the machine from vendor to entity premises
Cost of repairing damage to machine caused when the machine
was dropped during installation
150,000
40,000
50,000
Repairs incurred during the first year of operation
Safety device added to the machine
Cost of training workers to operate the machine
160,000
300,000
25,000
What amount should be capitalized as cost of the second hand machine?

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