Client is purchasing a piece of equipment for his business. The cost is $9000 and it will qualify as 5-year property. He is buying it on a contract for 60 monthly payments. Taxes and shipping of $2000 are added to the price as well as $2500 listed as “deferred price differential”, which sounds a lot like interest. The total cost of the item is listed as $13,500, the sum of the listed items. He has the right to prepay without penalty but will not receive a discount on the “deferred price differential”, although he may be charged a penalty for a late payment of 1.5% of the amount paid late.
My question is not so much with taxes as with the book entries. I know I can Section 179 the asset, shipping and taxes. I think I should amortize the deferred price differential over 60 months splitting the monthly payment between the liability for the asset and the deferred price differential taking the amount paid towards the deferred part as interest expense. Is this correct treatment?
My question is not so much with taxes as with the book entries. I know I can Section 179 the asset, shipping and taxes. I think I should amortize the deferred price differential over 60 months splitting the monthly payment between the liability for the asset and the deferred price differential taking the amount paid towards the deferred part as interest expense. Is this correct treatment?
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