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How much should the company capitalize?

How much should the company capitalize?

FINANCIAL ACCOUNTING
FINANCIAL ACCOUNTING
10th Edition
ISBN:9781259964947
Author:Libby
Publisher:Libby
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Question
During the current fiscal year, a company made the following expenditures: -Spent $50,630 to overhaul a machine. The overhaul enabled the machine to produce more products per hour than it previously had produced. -Spent $7,511 to replace a defective compressor. The new compressor had no impact on the useful life, efficiency, or productivity of the machine on which it is a component. -Spent a total of $39,551 on a series of low cost repairs. How much should the company capitalize?
Transcribed Image Text:During the current fiscal year, a company made the following expenditures: -Spent $50,630 to overhaul a machine. The overhaul enabled the machine to produce more products per hour than it previously had produced. -Spent $7,511 to replace a defective compressor. The new compressor had no impact on the useful life, efficiency, or productivity of the machine on which it is a component. -Spent a total of $39,551 on a series of low cost repairs. How much should the company capitalize?
Expert Solution
Step 1

 

Solution

 

The answer is $ 50630

The capitalized Assets is $ 50630

1)The company spent $ 50630 for the Machine, which is enabled to produce more products per hour.

   so it is treated as a Capital Expenditure and this machine is directly used for production.

    So this amount can be capitalized.

2 )$ 7511 is spent for replacing a defective compressor. But the new compressor is not a efficient one

    and is not directly used for production. So it is not capitalized.

3) $ 39551 is a repairing charge. It is not a capital expenditure. So it not capitalized.

 

 

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