Dorman Company Purchased a New Web Server on January 1

question 59

Essay

Dorman Company purchased a new web server on January 1. The following information and expenditures related to this acquisition were made:
$\begin{array}{lr}\text { List price } & \$ 5,000 \\\text { Cash price paid } & 4,200 \\\text { Transportation-in } & 300 \\\text { Insurance during transport } & 100 \\\text { Interest paid for the current year related to financing the web server } & 240 \\\text { Installation cost } & 200 \\\text { One-year maintenance contract } & 400 \\\text { Disk drive installed into the web server } & 1,000\end{array}$
Specify and justify which of the preceding expenditures should be added to the cost of the web server and disclose that cost. Indicate how the expenditures excluded from the cost of the web server would be classified.

---

Definitions:

Book Value

This is the net value of a company's assets minus its liabilities, as recorded on the balance sheet.

FIFO Inventory Method

An inventory valuation method where the first items acquired are the first ones sold, used to determine the cost of goods sold and ending inventory.

Net Income

Net income is the total earnings of a company after subtracting all expenses, including taxes, costs, and losses, from its total revenue, indicating its profit.

LIFO Method

An inventory valuation method that assumes the last items placed in inventory are the first sold, affecting cost of goods sold and inventory valuations on financial statements.