Question - Payne Company purchased equipment on account on September 3, 2012, at an invoice price of $196,000. On September 4, 2012, it paid $4,900 for delivery of the equipment. A one-year, $1,975 insurance policy on the equipment was purchased on September 6, 2012. On September 20, 2012, Payne paid $3,100 for installation and testing of the equipment. The equipment was ready for use on October 1, 2012.
Payne estimates that the equipment's useful life will be four years, with a residual value of $14,000. It also estimates that, in terms of activity, the equipment's useful life will be 75,000 units. Payne has a September 30 fiscal year end. Assume that actual usage is as follows:
Determine the cost of the equipment.