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Answer :
Answer:
Particulars Amount
Purchase price $700,000
Add: Freight cost $35,000
Add: Electrical connections $5,000
Add: Labor costs $37,800
Add: Bred dough used $900
Add: Safety guards $1,500
Total cost of Equipment $780,200
Note: Repairs cost of $5,000 will not be included
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The ovens purchased by Great Harvest Bakery should be recorded as equipment costs totaling $782,800, which includes the purchase price, freight, electrical connections, labor for installation, and repair costs but not the consumables or safety upgrades.
To record the equipment cost of the ovens for Great Harvest Bakery, we must include the purchase price of the ovens, freight costs, costs for special electrical connections, labor costs for installation, and repair costs for the damaged oven. Consumable supplies used in testing, such as the bread dough, and other costs that do not directly increase the asset's value or extend its useful life, such as the safety guards, are not capitalized. The schedule for the ovens in the Equipment account will look like this:
- Purchase price of ovens: $700,000
- Freight costs: $35,000
- Electrical connections: $5,000
- Labor costs for installation: $37,800
- Repair costs for damaged oven: $5,000
The total capitalized cost is $782,800 ($700,000 + $35,000 + $5,000 + $37,800 + $5,000). We do not include the $900 for consumed bread dough or the installation of safety guards at $1,500 as these are not capitalizable costs. Therefore, the ovens should be recorded in Great Harvest's Equipment account as $782,800.
