Indicate which of the following costs should be expensed when incurred: a. $13,000 paid for rearranging and reinstalling machinery. b. $200,000 paid for an addition to a building. c. $200 paid for a tune-up and oil change on a 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 its useful life.
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As per general accounting principles, costs should be expensed or capitalized depending on whether they provide future economic benefits and if they extend the useful life of the asset.
a. $13,000 paid for rearranging and reinstalling machinery. This cost should be expensed when incurred, as it is likely a cost associated with maintaining current productivity rather than extending the machinery's useful life or increasing its value.
b. $200,000 paid for an addition to a building. This cost should not be expensed immediately. Instead, it should be capitalized as it is a permanent improvement that increases the value of the building and extends its useful life.
c. $200 paid for a tune-up and oil change on a delivery truck. This cost should be expensed when incurred since it is a routine maintenance expense.
d. $7,000 paid to replace a wooden floor with a concrete floor. This cost can be considered a capital improvement rather than maintenance because it likely increases the property's value and extends its life. Thus, it should be capitalized and not expensed immediately.
e. $2,000 paid for a major overhaul on a truck, which extends its useful life. This cost should be capitalized because it extends the truck's useful life and is not a routine maintenance expense.