Question
Johnson and Johnson Company is considering a new drilling machine for its production plant to replace an old drilling machine that originally cost $10,000 and
Johnson and Johnson Company is considering a new drilling machine for its production plant to replace an old drilling machine that originally cost $10,000 and has $7,000 of accumulated depreciation. The new machine can be purchased at a cash cost of $16,000, but the distributor of the new drilling machine has offered to take the old machine in as a trade-in, thereby reducing the cost of the new machine to $14,000. Based only on this information, calculate the total relevant cost of acquiring the new machine.
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| A. | $16,000, or the gross cost of the new machine minus the $1,000 loss on disposing of the old machine |
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| B. | $14,000, or the net cash paid to the distributor |
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| C. | $14,000, or the net cash paid plus the book value ($3,000) of the old machine |
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| D. | $16,000, or the gross cost of the new machine |
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Management Accounting
Authors: Charles T Horngren, Gary L Sundem, William O Stratton, Howard D Teall, George Gekas
5th Canadian Edition
0131922688, 978-0131922686
