Determining whether an expenditure should be expensed or capitalized is often difficult. Consider each of the following independent situations and indicate whether you would recommend that the cost be expensed or capitalized as an asset. Explain your answer.
1. Splash.com has spent $1.5 million for a 30-second advertisement to be aired during the Super Bowl. The ad introduces the company’s new Web-based product, and the company expects the ad to increase sales for at least 18 months.
2. GenChrome has spent $8 million on research related to genetic diseases. The company expects this research to lead to substantial revenues, beginning in the next year.
3. All Choices is an online catalog sales company. All Choices has just spent $5 million designing a targeted advertising campaign that will encourage regular customers of the company’s online catalog service to buy new products.
4. Stock Up is an online seller of groceries. The company just spent $4 million building a new warehouse. The warehouse is expected to be useful for the next 15 years.