COST OF A FIXED ASSET
Laurel Cleaners purchased an automatic dry cleaning machine for $135,000 from TGF Corporation on April 1, 2009. Laurel paid $35,000 in cash and signed a five-year, 10 percent note for $100,000. Laurel will pay interest on the note each year on March 31, beginning in 2010. Transportation charges of $3,500 for the machine were paid by Laurel. Laurel also paid $2,400 for the living expenses of the TGF installation crew. Solvent, necessary to operate the machine, was acquired for $1,000. Of this amount, $500 of the solvent was used to test and adjust the machine.
Required:
1. Compute the cost of the new dry cleaning machine.
2. Explain why you excluded any expenditures from the cost of the dry cleaning machine.