Capitalizing versus expensing; if capitalized, what amortization period? In each of the following situations, compute the amounts of revenue, gain, expense, and loss appearing on the income statement for the year and the amount of asset appearing on the balance sheet as of the end of the year. Show the journal entry or entries required, and provide reasons for your decisions. The firm uses straight-line amortization. The reporting period is the calendar year. Consider each of the situations independently, except where noted.

a. Because of a new fire code. MCB Upholstery Shop must install an additional fire escape on its building. Management previously considered installing the additional fire escape. It rejected the idea because it had already installed a modern sprinkler system, which was even more cost-effective. The new code gives management no alternative except to close the store. MCB acquires the fire escape for

$28,000 cash on January 1. It expects to demolish the building seven years from the date it installs the fire escape.

b. Many years ago, a firm acquired shares of stock in General Electric Company for $100,000. On December 31. the firm acquired a building with an appraised value of $1 million. The company paid for the building by giving up its shares in General Electric Company at a time when equivalent shares traded on the New York Stock Exchange for $1,050,000.

c. Same data as in part

b, except that the shares of stock represent ownership in Small Timers, Inc., whose shares trade on a regional stock exchange. The last transaction in shares of Small Timers, Inc., occurred on December 27. Using the prices of the most recent trades, the shares of stock of Small Timers, Inc.. given in exchange for the building have a market value of $1,050,000.

d. Oberweis Dairy decides that it can save $3,500 a year for 10 years by switching from small panel trucks to larger delivery vans. To do so requires remodeling costs of $18,000 for various garages. The first fleet of delivery vans will last for five years, and the garages will last for 20 years. Oberweis remodeled the garages on January 1 .

e. Woods Petroleum drills for oil. It sinks 10 holes during the year at a cost of $1 million each. Nine of the holes are dry, but the tenth is a gusher. By the end of the year, the oil known to be recoverable from the gusher has a net realizable value of $40 million, and Amoco has offered to buy the field for $40 million. Woods extracted no oil during the year.

f. A company manufactures aircraft. During the cunent year, it made all sales to the government under defense contracts. The company spent $400,000 on institutional advertising to keep its name before the business community. It expects to resume sales of small jet planes to corporate buyers in two years.
g. AT&T runs a large laboratory that has, over the years, found marketable ideas and products worth tens of millions of dollars. On average, the successful products have a life of 10 years. Assume that expenditures for the laboratory this year were $1,500,000.
h. A textile manufacturer gives $250,000 to the Textile Engineering Department at Georgia Tech for basic research in fibers. The results of the research, if any. will belong to the general public.
i. On January 1, assume that Mazda incurs costs of $6 million for specialized machine tools necessary to produce a new-model automobile. Such tools last for six years, on average, but Mazda expects to produce the new model automobile for only three years.
j. On January 1, assume that USAir purchased a fleet of airplanes for $100 million cash. USAir expects the airplanes to have a useful life of 10 years and zero salvage value. At the same time the airline purchased for cash $20 million of spare parts for use with those airplanes. The spare parts have no use, now or in the future, other than replacing broken or worn-out airplane parts. During the first year of operation, USAir used no spare parts.
k. Refer to the data in j. In the second year of operation, USAir used $1 million of spare parts.