Li Enterprises recently purchased new computer equipment for its company
Li Enterprises recently purchased new computer equipment for its company headquarters. Following is information regarding the various cash expenditures related to the acquisition of this equipment.
• The invoice price of the equipment was $300,000; however, Li’s owner negotiated a 15 percent price reduction.
• The equipment was shipped to Li’s headquarters FOB shipping point. The delivery cost was $2,750.
• Li paid $1,870 to hire a computer consultant to install and test the new equipment.
• Supplies costing $135 were used in installing and testing the equipment.
• The day following the installation of the equipment, one of Li’s employees broke a USB port on the computer equipment. The company paid $265 to have the port replaced.
(a) Determine the acquisition cost of the computer equipment for accounting purposes.
(b) Prepare an appropriate journal entry to record the acquisition of the computer equipment and the incurrence of the related costs.
(c) A computer purchased for several thousand dollars may have little resale value one year later because of technological changes in the computer industry. Given that the resale value of computers and computer equipment can decline rapidly, is historical cost the proper valuation basis to use for such assets? Defend your answer.
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