Is the discount a reduction in the cost of the asset?
Dec 31, 2013 · Which of the following best describes the proper treatment of cash discounts on acquired machinery? The historical cost of the machinery should be the net-of-discount amount, regardless of whether the discount is actually taken. Granger Company purchased land with a current market value of $240,000. Its book value in the accounts of the seller ...
How should discounts on plant assets be handled?
Dec 07, 2017 · The proper treatment of the cash discounts on acquired machinery is when the historical cost of the machinery should be the net of discount amount, despite whether the discount is actually taken. 63.
What is the cash inflow from sale of used equipment?
Which of the following best describes the proper treatment of cash discounts on acquired machinery? a. The historical cost of the machinery should be the invoice price; the discount …
What is a cash discount in accounting?
Which of the following best describes a voucher prepared under good internal control? A. A document prepared by Stores that indicates amount to be purchased. B. A document prepared …
How is cash discount treated?
The discounts are essentially treated as compensation to the seller for providing credit to the buyer. The gross method views discounts that aren't taken by the buyer as a portion of total sales revenue – not as separate interest earnings. The gross method is the most common in business practices today.
What is the accounting cost of an asset acquired on account subject to a cash discount?
On Account - When an asset is acquired on account subject to a cash discount, the cost of the asset is equal to the purchase price, including import duties and non-refundable purchase taxes, after deducting trade discounts and rebates. Example, an entity purchased a threshing machine on account at P200,000, 2/10, n/30.
What are cash discounts is given on?
A cash discount is a reduction in the amount of an invoice that the seller allows the buyer. This discount is given in exchange for the buyer paying the invoice earlier than its normal payment date.Jan 6, 2022
What is the normal method for expressing a cash discount?
The basic formula for cash discount can be expressed as CD = P*R, which stands for cash discount = purchase price * discount rate.Nov 10, 2021
How is the acquisition cost of an asset determined when the asset is acquired in exchange for securities?
In a stock offering, the acquirer's cost is determined by the product between the exchange ratio and the number of outstanding shares of the target company.
How are acquisition costs accounted for?
The cost of acquisition is the total expense incurred by a business in acquiring a new client or purchasing an asset. An accountant will list a company's cost of acquisition as the total after any discounts are added and any closing costs are deducted.
Why do businesses give cash discounts?
Cash discounts are deductions that aim to motivate customers to pay their bills within a certain time frame. A cash discount gives a seller access to her cash sooner than if she didn't offer the discount.
What is cash discount and trade discount?
Trade discount is given on the catalogue price of the goods while the cash discount is given on the invoice price. Trade discount is granted with the aim of increasing the sales in bulk quantity, whereas Cash discount is granted to facilitate a quick payment. A trade discount is shown as a deduction in the invoice.
When should you take a cash discount?
Cash Discount Programs are ideal for retail businesses who have a low average ticket price, around $10-$15. In an increasingly cashless economy, consumers are starting to carry cash less and less often, so this is important to take into consideration.
How do you record cash discounts?
Cash discount is an expense for the seller and income for the buyer. It is, therefore, debited in the books of the seller and credited in the books of the buyer.Sep 17, 2021
What is a cash discount quizlet?
Terms in this set (23) cash discount. savings that result from early payment by taking advantage of discounts offered by the seller; discount is not taken on freight or taxes.
How do you record trade discount and cash discount?
Sales are recorded based on net price. Net price = List price – Trade discount. Therefore, trade discounts are not recorded in the books of accounts. However, on the other hand, cash discounts are recorded in the books of accounts.Jan 3, 2022
Why should all costs associated with the construction of an asset be capitalized?
A common accounting justification is that all costs associated with the construction of an asset, including interest, should be capitalized in order that the costs can be matched to the revenues which the new asset will help generate. 9. Provide examples of assets that do not qualify for interest. capitalization.
Why capitalize fixed overhead?
To capitalize a portion of fixed overhead as an element of the cost of constructed assets would, under these circumstances, reduce the amount assignable to operations and therefore overstate net income in the construction period and understate net income in subsequent periods because of increased depreciation charges.
What are the characteristics of plant assets?
The major characteristics of plant assets are (1) that they are acquired for use in operations and not for resale, (2) that they are long-term in nature and usually subject to depreciation, and (3) that they have physical substance. 2. Mickelson Inc. owns land that it purchased on January 1, 2000, for $450,000.
Is avoidable interest capitalized?
GAAP requires that avoidable or actual interest cost, whichever is lower, be capitalized as part of the cost of acquiring an asset if a significant period of time is required to bring the asset to a condition and location necessary for its intended use. (d) Cost of a safety device installed on a machine.
What assets do not qualify for interest capitalization?
Assets that do not qualify for interest capitalization are (1) assets that are in use or ready for their intended use, and (2) assets that are not being used in the earnings activities of the firm. 10. What interest rates should be used in determining the.
Does the second class of expenditures affect the recorded cost of property?
The second class of expenditures may or may not affect the recorded cost of property. If the asset is rigidly defined as a distinct unit, the renewal of parts does not usually disturb the asset accounts; however, these costs may be capitalized and apportioned over several fiscal periods on some equitable basis.
Is failure to take a discount a loss?
The other view is that failure to take the discount should not be considered a loss , because the terms may be unfavorable or the company might not be prudent to take the discount. Presently both methods are employed in practice. The former approach is conceptually correct.
How is depreciation recorded under the group method?
Under the group method, depreciation is recorded until the book value of the group is depreciated to the salvage value of the group. This is done by using an average life of all assets in the group/ as Assets are retired, the group salvage value is reduced, and no gains or losses are recognized on the retirements.
What is a purchasing power gain?
If the general price level changes, a purchasing power gain (loss) may occur on monetary items. A monetary liability held constant during a period of inflation creates a purchasing power gain because the liability could be paid using a fixed amount of cash which is worth less than the cash borrowed earlier .
Does a year 2 balance sheet include deferred taxes?
The year 2 balance sheet should include a deferred tax ... Asset - No. Liability - Yes. A deferred tax liability is recognized for temporary differences that will result in net taxable amounts (taxable income exceeds book income) in future years. Although Cody Co. has recognized a loss (per books) in year 2 of the construction contract, ...
Is a 3 month Treasury bill considered a cash equivalent?
The purchase of a 3-month US treasury bill is the acquisition of a security; however, it is considered a cash equivalent and thus would not be included in investing activities. Furthermore, the exchange of cash for cash equivalents would result in no net change in cash and cash equivalents.
Does Cody recognize profit in year 3?
Therefore, in year 3 when the contract is completed, Cody will recognize the total profit on its tax return while only a portion of the profit will be recorded on its income statement. Thus, the contract will result in a taxable amount in year 3 and a deferred tax liability exists.