Which of the following would NOT be included as part of the cost of equipment recently purchased under generally accepted accounting principles (GAAP)?

• A. Annual maintenance costs
• B. Installation charges
• C. Purchase price of the equipment
• D. Freight-in costs

Answer: (A)

Verified step by step guidance

1. Understand the concept of 'cost of equipment' under GAAP: The cost of equipment includes all expenditures necessary to acquire the asset and prepare it for use. This typically includes the purchase price, freight-in costs, installation charges, and other costs directly attributable to bringing the asset to its intended use.
2. Identify the items listed in the problem: Annual maintenance costs, installation charges, purchase price of the equipment, and freight-in costs.
3. Analyze each item: Installation charges, purchase price of the equipment, and freight-in costs are directly related to acquiring and preparing the equipment for use, so they are included in the cost of equipment under GAAP.
4. Consider annual maintenance costs: Maintenance costs are recurring expenses incurred after the equipment is operational. These costs are not part of the acquisition cost but are instead treated as operating expenses in the period they are incurred.
5. Conclude that annual maintenance costs would NOT be included as part of the cost of equipment under GAAP, as they are not directly related to acquiring or preparing the equipment for use.