On April 1, 2013, Archer Corporation purchased a new machine on a deferred payment basis. A down payment of $6,000 was made and six monthly installments of $4,000 each are to be made beginning on May 1, 2013. The cash equivalent price of the machine was $28,000. Archer incurred and paid installation costs amounting to $500. The amount to be capitalized as the cost of the machine is a. $28,000 b. $22,600 c. $28,500 d. $24,600
Depreciation Methods
The word "depreciation" is defined as an accounting method wherein the cost of tangible assets is spread over its useful life and it usually denotes how much of the assets value has been used up. The depreciation is usually considered as an operating expense. The main reason behind depreciation includes wear and tear of the assets, obsolescence etc.
Depreciation Accounting
In terms of accounting, with the passage of time the value of a fixed asset (like machinery, plants, furniture etc.) goes down over a specific period of time is known as depreciation. Now, the question comes in your mind, why the value of the fixed asset reduces over time.
On April 1, 2013, Archer Corporation purchased a new machine on a deferred payment basis. A down payment of $6,000 was made and six monthly installments of $4,000 each are to be made beginning on May 1, 2013. The cash equivalent price of the machine was $28,000. Archer incurred and paid installation costs amounting to $500. The amount to be capitalized as the cost of the machine is
a. $28,000
b. $22,600
c. $28,500
d. $24,600
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