Southwest Milling Co. purchased a front-end loader to move stacks of lumber. The loader had a list price of $140,000. The seller agreed to allow a 4 percent discount because Southwest Milling paid cash. Delivery terms were FOB shipping point. Transportation cost amounted to $1,200. Southwest Milling had to hire a specialist to calibrate the loader. The specialist’s fee was $1,800. The loader operator is paid an annual salary of $60,000. The cost of the company’s theft insurance policy increased by $800 per year as a result of acquiring the loader. The loader had a four-year useful life and an expected salvage value of $6,000. Required:
a. Determine the amount to be capitalized in an asset account for the purchase of the loader.
b. Record the purchase in general journal format.

137,400

Explanation:

We can calculate the cost of equipment by adding all the directly attributable costs incurred in bringing the asset into a workable condition.  

Requirement 1:

List Price                                            140,,000

Discount (140,000 x 4%)                     (5,600)

Freight cost                                           1,200

Specialist Fee                                       1,800    

Total Cost                                           137,400

Requirement 2:

Dr        Equipment Loader            137,400

Cr            Cash                                     137,400

you will have $2593.74 in 10 years if you set aside $1,000 at 10%

you will have $9321.91 in 20 years if you set aside $2000 at 8%

you will have $1469.32 in 5 years if you set aside $1000 at 8%

you will have $1296.87 in 10 years if you set aside $500 at 10%

you will have $239.66 in 15 years if you set aside $100 at 6%

you will have $4660.96 in 20 years if you set aside $1000 at 8%