Purchased equipment for 56000. the purchase was paid for with cash. there were other costs related to the purchase: transportation costs, $1,600; sales tax paid $2,300 ; and installation cost, $1,600. would capitalize the equipment in the amount of:

would capitalize the equipment at $61,500

Explanation:

The capitalized cost of the equipment purchased consists of invoice price of the equipment,transportation costs,sales tax paid as well as costs of installing the equipment .

The capitalized cost is computed as follows:

Cash paid                    $56,000

Transportation costs   $1,600

Sales tax paid               $2,300

Installation costs           $1,600

total cost                       $61,500

The rationale for sales tax is that it is recoverable,however the costs of transportation and installation were included because they were incurred in  bringing the asset to its current location and condition

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