Answer :
Amounts not included in the Equipment account should be recorded: The amount of $810 for the bread dough used in testing the ovens should be recorded as an expense in the Testing Expenses account
The amount at which the ovens should be recorded in Great Harvest’s Equipment account is:
Purchase price of ovens = $689,000
Freight costs = $29,500
Special electrical connections = $3,900
Labor costs = $32,300
Repair costs = $3,900
Safety guards = $1,410
Total equipment = $760,410
The amount of $810 for the bread dough used in testing the ovens should be recorded as an expense in the Testing Expenses account. The cost of the safety guards and special electrical connections should be included in the Equipment account, as they were necessary costs incurred to get the ovens ready for operation.
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Complete question:
Great Harvest Bakery purchased bread ovens from New Morning Bakery. New Morning Bakery was closing its bakery business and sold its two-year-old ovens at a discount for $689,000. Great Harvest incurred and paid freight costs of $29,500, and its employees ran special electrical connections to the ovens at a cost of $3,900. Labor costs were $32,300. Unfortunately, one of the ovens was damaged during installation, and repairs cost $3,900. Great Harvest then consumed $810 of bread dough in testing the ovens. It installed safety guards on the ovens at a cost of $1,410 and placed the machines in operation.
Required:
1. Complete the following schedule to show the amount at which the ovens should be recorded in Great Harvest’s Equipment account.
_____________ ___
_____________ ___
Total equipment
2. Indicate where any amounts not included in the Equipment account should be recorded.
To calculate the total investment of the German Brewery Bakery in their new ovens, the purchase price, freight, electrical work, labor, repairs, testing materials, and safety installations must be summed up. This total will be used to determine capitalization costs for depreciation and to reflect the investment on financial statements.
The German Brewery Bakery incurred several costs associated with purchasing and installing used bread ovens from New Morning Bakery. These costs include the purchase price of $692,000, freight costs of $31,000, electrical connections costing $4,200, labor costs of $33,800, repair costs for damaged ovens totaling $4,200, materials used in testing ($820), and the installation of safety guards at $1,420. All these expenses constitute the capitalization cost and indicate the total investment made to get the ovens operational, which is important for the calculation of depreciation and for accounting purposes.
