Acquisition of an Asset

Ray’s Printing Company purchased a new printing press. The invoice price was $184,250. The company paid for the press within 10 days, so it was allowed a 2% discount. The freight cost for delivering the press was $3,000. A premium of $1,200 was paid for a special insurance policy to cover the transportation of the press. The company spent $3,400 to install the press and an additional $655 in start-up costs to get the press ready for regular production.

Required:

1. At what amount should the press be recorded as an asset?

2. What additional information must be known before the depreciation expense for the first year of operation of the new press can be computed?

3. Interpretive Question: What criterion is used to determine whether the start-up costs of $655 are included in the cost of the asset? Explain.