Cap It Right! - Original Cost of Equipment

Which of the following is ALWAYS included in the original capitalized cost of a piece of equipment?

• Employee training costs

• The purchase price (invoice price) of the equipment

• Annual maintenance contract for the first year

• Advertising costs for products made by the equipment

A company incurs costs to transport a newly purchased machine to its factory and to set it up. These delivery and installation costs should be:

• Expensed immediately as operating costs

• Capitalized as part of the machinery's cost

• Recorded as a separate intangible asset

• Ignored for accounting purposes

Referring to Question 1 in the main problem (Purchase price $40k, Delivery $6k, Training $500, Maintenance $200, Legal fees $4k), which of these costs would typically be EXPENSED rather than capitalized?

• Purchase price of the equipment

• Delivery and installation costs

• Training costs for employees

• Legal fees associated with the purchase contract

Legal fees incurred specifically for drafting and completing the purchase contract for a new machine are generally:

• Capitalized as part of the cost of the machine

• Always treated as an administrative expense

• Deferred and amortized over the legal contract's life

• Only capitalized if they exceed a certain monetary threshold

The primary principle for capitalizing a cost associated with acquiring a non-current asset is that the cost must be:

• Paid in cash immediately

• Directly attributable to bringing the asset to the location and condition necessary for it to be capable of operating in the manner intended by management

• Expected to increase the company's revenue in the first year

• Approved by the company's CEO

Based on the scenario in Question 1 of the main problem: Purchase price: $40,000 Delivery and installation: $6,000 Training costs: $500 Annual maintenance: $200 Legal fees (purchase contract): $4,000 What is the total original cost that should be capitalized for the machinery?

• $40,000

• $46,000

• $50,000

• 50,700

A company purchased a machine for $10,000. They also paid $500 for shipping, $300 for installation, and $200 for a one-year service contract that begins after installation. What is the capitalized cost of the machine?

• $10,000

• $10,500

• $10,800

• 11,000

Which of the following costs incurred for a new machine would typically NOT be capitalized?

• Import duties paid on the machine

• Cost of a concrete pad specifically built for the machine

• Cost of fuel and lubricants for the first month of operation

• Architect's fees for designing the machine's specialized housing

A company buys a new 3D printer. Which cost is LEAST likely to be capitalized?

• The invoice price of the 3D printer.

• The cost to ship the 3D printer to the company's office.

• The cost of an optional, extended 3-year warranty purchased at the same time.

• The cost to have a technician unbox and set up the 3D printer.

"Site preparation costs" directly necessary for a new piece of equipment to be installed and function as intended (e.g., reinforcing a floor) are:

• Always expensed as repairs and maintenance.

• Capitalized as part of the equipment's cost.

• Recorded as land improvements.

• Ignored until the equipment is sold.