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On January 1, Year 2, Webb Construction Company overhauled four cranes resulting in a slight Increase in the life of the cranes. Such overhauls occur regularly at two-year Intervals and have been treated as maintenance expense in the past. Management is considering whether to capitalize this year's $22,000 cash cost in the Cranes asset account or to expense it as a maintenance expense. Assume that the cranes have a remaining useful life of two years and no expected salvage value. Assume straight-line depreciation. Required a. Determine the amount of additional depreciation expense Webb would recognize In Year 2 and Year 3 if the cost were capitalized in the Cranes account. b. Determine the amount of expense Webb would recognize In Year 2 and Year 3 If the cost were recognized as maintenance expense. c. Determine the effect of the overhaul on cash flow from operating activities for Year 2 and Year 3 If the cost were capitalized and expensed through depreciation charges. (Cash outflows should be indicated with a minus sign.) d. Determine the effect of the overhaul on cash flow from operating activities for Year 2 and Year 3 If the cost were recognized as maintenance expense. (Cash outflows should be Indicated with a minus sign.) a. Depreciation Expense b. Maintenance Expense c. Operating Activities d. Operating Activities Year 2 Year 3

On January 1, Year 2, Webb Construction Company overhauled four cranes resulting in a slight Increase in the life of the cranes. Such overhauls occur regularly at two-year Intervals and have been treated as maintenance expense in the past. Management is considering whether to capitalize this year's $22,000 cash cost in the Cranes asset account or to expense it as a maintenance expense. Assume that the cranes have a remaining useful life of two years and no expected salvage value. Assume straight-line depreciation. Required a. Determine the amount of additional depreciation expense Webb would recognize In Year 2 and Year 3 if the cost were capitalized in the Cranes account. b. Determine the amount of expense Webb would recognize In Year 2 and Year 3 If the cost were recognized as maintenance expense. c. Determine the effect of the overhaul on cash flow from operating activities for Year 2 and Year 3 If the cost were capitalized and expensed through depreciation charges. (Cash outflows should be indicated with a minus sign.) d. Determine the effect of the overhaul on cash flow from operating activities for Year 2 and Year 3 If the cost were recognized as maintenance expense. (Cash outflows should be Indicated with a minus sign.) a. Depreciation Expense b. Maintenance Expense c. Operating Activities d. Operating Activities Year 2 Year 3

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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On January 1, Year 2, Webb Construction Company overhauled four cranes resulting in a slight increase in the life of the cranes. Such overhauls occur regularly at two-year Intervals and have been treated as maintenance expense in the past. Management is considering whether to capitalize this year's $22,000 cash cost in the Cranes asset account or to expense it as a maintenance expense. Assume that the cranes have a remaining useful life of two years and no expected salvage value. Assume straight-line depreciation. Required a. Determine the amount of additional depreciation expense Webb would recognize In Year 2 and Year 3 If the cost were capitalized in the Cranes account. b. Determine the amount of expense Webb would recognize In Year 2 and Year 3 If the cost were recognized as maintenance expense. c. Determine the effect of the overhaul on cash flow from operating activities for Year 2 and Year 3 If the cost were capitalized and expensed through depreciation charges. (Cash outflows should be indicated with a minus sign.) d. Determine the effect of the overhaul on cash flow from operating activities for Year 2 and Year 3 if the cost were recognized as maintenance expense. (Cash outflows should be indicated with a minus sign.) a. Depreciation Expense b. Maintenance Expense C. Operating Activities d. Operating Activities Year 2 Year 3
Transcribed Image Text:On January 1, Year 2, Webb Construction Company overhauled four cranes resulting in a slight increase in the life of the cranes. Such overhauls occur regularly at two-year Intervals and have been treated as maintenance expense in the past. Management is considering whether to capitalize this year's $22,000 cash cost in the Cranes asset account or to expense it as a maintenance expense. Assume that the cranes have a remaining useful life of two years and no expected salvage value. Assume straight-line depreciation. Required a. Determine the amount of additional depreciation expense Webb would recognize In Year 2 and Year 3 If the cost were capitalized in the Cranes account. b. Determine the amount of expense Webb would recognize In Year 2 and Year 3 If the cost were recognized as maintenance expense. c. Determine the effect of the overhaul on cash flow from operating activities for Year 2 and Year 3 If the cost were capitalized and expensed through depreciation charges. (Cash outflows should be indicated with a minus sign.) d. Determine the effect of the overhaul on cash flow from operating activities for Year 2 and Year 3 if the cost were recognized as maintenance expense. (Cash outflows should be indicated with a minus sign.) a. Depreciation Expense b. Maintenance Expense C. Operating Activities d. Operating Activities Year 2 Year 3
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