Matching Costs and Benefits: The Heart of Accrual Accounting Under accrual accounting, the matching concept plays a central role in determining the amount of expenses and net income to be reported in the financial statements within individual periods. Your assistance is needed in applying the matching concept for Mountain Supply Company. Mountain Supply Company paid $10,000 for a freezer to be used to store products that it sells to the public. The freezer is expected to last 10 years and have no value at the end of that period. At the end of the first year, Mountain Supply reported $1,000 of the cost of the freezer as an operating expense.

a. How did Mountain Supply determine that the $1,000 cost should be an expense in the first year? Where will this expense be reported in the financial statements?

b. What is the unexpired cost of the freezer at the end of the first year? Where will the unexpired cost be reported in the financial statements?

c. If at the end of the fifth year an electrical short ruins the freezer and it has to be discarded, how should Mountain Supply account for the remaining unexpired cost?