Melinda Stoffers owns and operates ABC Print Co. During February, ABC incurred the following costs in acquiring two printing presses. One printing press was new, and the other was purchased from a business that recently filed for bankruptcy.

Question

a. Indicate which costs incurred in acquiring the new printing press (1-6 below) should be debited to the asset account.

Item Debited to asset account
1. Fee paid to factory representative for installation
2. Freight
3. Insurance while in transit
4. New parts to replace those damaged in unloading
5. Sales tax on purchase price
6. Special foundation
b. Indicate which costs incurred in acquiring the used printing press (7-12 below) should be debited to the asset account.

Item Debited to asset account
7. Fees paid to attorney to review purchase agreement
8. Freight
9. Installation
10. Repair of damage incurred in reconditioning the press
11. Replacement of worn-out parts
12. Vandalism repairs during installation

Answer 1

When acquiring assets, costs that are directly attributable to bringing the asset to its intended use should be capitalized (debited to the asset account). Here's the breakdown for both the new and used printing presses:

a. Costs incurred in acquiring the new printing press:

1. Fee paid to factory representative for installation – Yes
2. Freight – Yes
3. Insurance while in transit – Yes
4. New parts to replace those damaged in unloading – Yes
5. Sales tax on purchase price – Yes
6. Special foundation – Yes

Costs to be debited to the asset account for new printing press:

1, 2, 3, 4, 5, 6 (All of these costs should be debited)

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b. Costs incurred in acquiring the used printing press:

7. Fees paid to attorney to review purchase agreement – Yes
8. Freight – Yes
9. Installation – Yes
10. Repair of damage incurred in reconditioning the press – Yes
11. Replacement of worn-out parts – No (These should be expensed as repairs)
12. Vandalism repairs during installation – No (These should also be expensed)

Costs to be debited to the asset account for used printing press:

7, 8, 9, 10 (These costs should be debited; 11 and 12 should not be debited)

Summary for used printing press: Debited to asset account: 7, 8, 9, 10 (4 total) Not debited: 11, 12 (2 total)