Salvia Company recently purchased a truck. The price negotiated with the dealer was $40,000. Salvia also paid sales tax of $2,000 on the purchase, shipping and preparation costs of $3,000, and insurance for the first year of operation of $4,000. At what amount should the truck be recorded on the balance sheet prior to recording depreciation expense? A. $40,000. B. $42,000. C. $43,000. D. $45,000.

Question

Dana Leon

Business

28 November, 12:49

Salvia Company recently purchased a truck. The price negotiated with the dealer was $40,000. Salvia also paid sales tax of $2,000 on the purchase, shipping and preparation costs of $3,000, and insurance for the first year of operation of $4,000. At what amount should the truck be recorded on the balance sheet prior to recording depreciation expense? A. $40,000. B. $42,000. C. $43,000. D. $45,000.

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Answers (1)

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Nyasia Moody · Answer 1

D. $45,000.

Explanation:

The amount to be recognized in the books as the cost of an asset is the total cost incurred in making the asset available for use.

Of all the cost elements given, only insurance expense will not be included, as the asset is deemed to be available for use without the insurance cost.

Cost of truck = $40,000 + $2,000 + $3,000

= $45,000