Auto Mechanics, Inc., purchased a new piece of equipment for one of the company’s repair shops on January 1, 2010. The invoice price was $64,700, but the salesperson gave Auto a 5% discount for paying cash for the equipment. Delivery costs amounted to $2,500, and Auto paid $300 for a special insurance policy to cover the equipment while in transit. The installation cost was $1,250, and Auto spent $2,500 training the employees to use the new equipment. Additionally, Auto had to spend $7,500 to customize the equipment to fit the shop’s needs and hired a special mechanic at an annual salary of $55,000 who had several years experience with this type of equipment.

Requirements

1. What amount should be capitalized for this new asset?

2. To calculate the depreciation expense for 2010, what other information do you need? Do you think the company should gather this information before purchasing the asset? Why or why not?