Mad Hatter Enterprises purchased new equipment for $358,000, terms f. o.b. shipping point. Other costs connected with the purchase were as follows: State sales tax $ 28,500 Freight costs 4,900 Insurance while in transit 730 Insurance after equipment placed in service 1,130 Installation costs 1,650 Insurance for the first year of operations 2,050 Testing 630 Required: Determine the capitalized cost of the equipment.

$394,410

Explanation:

Data given

New equipment purchased = $358,000

State sales tax = $28,500

Freight costs = $4,900

Insurance while in transit = $730

Installation costs = $1,650

Testing = $630

The computation of capitalized cost of the equipment is shown below:-

Capitalized cost of the equipment = New equipment purchased + State sales tax + Freight costs + Insurance while in transit + Installation costs + Testing

= $358,000 + $28,500 + $4,900 + $730 + $1,650 + $630

= $394,410

Therefore for computing the capitalized cost of the equipment we simply applied the above formula.

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