Question 2

Company ABC constructed a new factory at a cost of $2,000,000. The company also purchased new machinery and equipment at a cost of $200,000. The company spent another $10,000 to configure and bring the machinery and equipment into working condition. The company estimates that the cost to dismantle and remove the factory and machinery after 10-year of use will be $100,000 and $50,000, respectively.

Instruction:

a) Calculate the present value factor with an annual discount rate of 5% for 10 years.

b) Determine the total cost of the new factory (including estimated dismantling and removal).

c) Determine the total cost of the new machinery and equipment (including estimated dismantling and removal).

d) Provide the journal entry to record the initial recognition of costs for the new factory and machinery.