Reference no: EM132546273

Question - Podunk College recently purchased new exercise equipment for its gym. The following information refers to the purchase and installation of this equipment:

1. The list price of the equipment was $180,000; however, Podunk College qualified for an "educational discount" of $30,000. It paid $20,000 cash for the equipment, and issued a 3-month, 12% note payable for the remaining balance. The note, plus accrued interest charges of $3,900 was paid promptly at the maturity date.

2. In addition to the amounts described in 1, Podunk paid sales taxes of $7,500 at the date of purchase.

3. Freight charges for delivery of the equipment totaled $1,200.

4. Installation and training costs related to the equipment amounted to $4,000.

5. During installation, one of the pieces of equipment was accidentally damaged by an employee. It cost the college $600 to repair this damage.

6. As soon as the equipment was installed, the college paid $70,000 to print admissions brochures featuring the gym's new, state-of-new-art exercise facilities.

Instructions -

a. In one sentence, make a general statement summarizing the nature of expenditures that qualify for inclusion in the cost of plant assets such as exercise equipment.

b. For each of the six numbered paragraphs, indicate which items should be included by Podunk College in the total cost debited to its Equipment account. Also briefly indicate the proper accounting treatment of those items that are not included in the cost of the equipment.

c. Compute the total cost debited to the college's Equipment account.

d. "Prepare a journal entry at the end of the current year to record depreciation on the exercise equipment. Podunk College will depreciate this equipment by the straight-line method (half-year convention) over an estimated useful life of 4 years. Assume a zero residual value.