Assume your company purchases a new computer with an invoice price of $40,000. You also paid sales tax of $2,000, shipping and preparation costs of $3,000, and insurance for the first year of operation is $4,000. At what amount should the computer be recorded on the balance sheet prior to recording depreciation expense?

A ... $40,000.

B. $42,000.

C. $43,000.

D. $45,000.

E. $49,000

D) $45,000.

Explanation:

invoice price $40,000

sales tax $2,000

shipping and preparation costs $3,000

total = $45,000

The cost of any equipment includes the purchase price, related taxes (sales tax or import tariffs), shipping and handling costs, and insurance during the shipping and installation of the equipment.

Insurance that covers the equipment once it is operating is not included in the original cost of the equipment, it is considered an expense.