Question

Indicate which of the following costs should be expensed when incurred.

(a) \(13,000 paid to rearrange and reinstall machinery.

(b) \)200,000 paid for addition to building.

(c) \(200 paid for tune-up and oil change on delivery truck.

(d) \)7,000 paid to replace a wooden floor with a concrete floor.

(e) $2,000 paid for a major overhaul on a truck, which extends the useful life

Short answer

In the given case, transaction (c) should be expensed.

Step-by-step solution

$13,000 paid to rearrange and reinstall machinery

In this given case, the $13,000 paid-for rearrange and reinstallation should be capitalized as the original installation cost and depreciation to date has not been known.

$200,000 paid-ford for addition to building

This is the addition to a present asset. Thus it should be capitalized and not expensed.

$200 paid for tune-up and oil change on delivery truck

This is the period expense for improving current performance. So this amount should be expensed and not capitalized.

$7,000 paid to replace a wooden floor with a concrete floor

In the given case, a wooden floor has been replaced with a concrete floor. So this is an improvement. This can be capitalized based on the assumption that the amount can be reduced to zero by depreciation.

$2,000 paid for a major overhaul on a truck, which extends the useful life

In the given case, repair has extended the useful life of the asset, so it would be capitalized and not expensed.