Businesses must capitalize the cost of assets that are used in the day-to-day operations of the company. These assets are used for extended periods of time, and their capitalized values are shown in the property, plant, and equipment category on the companys balance sheet. The capitalized value of each asset, also known as the historical cost, must be recorded separately. In establishing the historical cost of the asset, all costs and expenses of the asset, until the asset is operational, is used.

You have a meeting with Prahbu at his manufacturing plant to explain capitalized assets and historical costs to him. After the meeting, you want to provide Prahbu a written document about the discussion for his use.

Prepare a 2-page minimum written analysis for Prahbu explaining what the capitalized value of an asset is and what costs must be used to calculate the value. To help Prahbu with his specific situation, use the summary of his new machine purchase shown below to answer the question for him. Include this answer in the document.

In January, Prahbu purchased a new machine for use in an existing production line of his manufacturing business for $90,000. Assume that the machine is a unit of property and is not a material or supply. Prahbu pays $2,500 to install the machine, and after the machine is installed, he pays $1,300 to perform a critical test on the machine to ensure that it will operate in accordance with quality standards. On November 1, the critical test is complete, and Prahbu places the machine in service on the production line. On December 3, Prahbu pays another $3,300 to perform periodic quality control testing after the machine is placed in service.

How much will Prahbu be required to capitalize as the cost of the machine?