McClain Company incurred the following expenditures during 2016:

Apr.	9	The air conditioning system in the old manufacturing facility was replaced for $88,000. The old air conditioning system had a cost of $73,250 and a book value of $2,300. The old air conditioning system had no scrap value.
June	29	Annual maintenance of $38,750 was performed.
Sept.	12	The roof of the old manufacturing facility is replaced at a cost of $63,000. This expenditure substantially extended the life of the facility.
Dec.	28	A new wing was added to the manufacturing facility at a cost of $257,000. This expenditure substantially increased the productive capacity of the plant.

Required:

1.

Prepare journal entries to record McClains expenditures for 2016.

2.

Next Level What is the effect on the financial statements if management had improperly accounted for the:

A.

addition of the new wing to the manufacturing facility

B.

CHART OF ACCOUNTS

McClain Company

General Ledger

	ASSETS
111	Cash
121	Accounts Receivable
141	Inventory
152	Prepaid Insurance
181	Building
185	Equipment
188	Air Conditioning System
198	Accumulated Depreciation

	LIABILITIES
211	Accounts Payable
231	Salaries Payable
250	Unearned Revenue
261	Income Taxes Payable

	EQUITY
311	Common Stock
331	Retained Earnings

	REVENUE
411	Sales Revenue
881	Gain on Disposal of Property, Plant, and Equipment

	EXPENSES
500	Cost of Goods Sold
511	Insurance Expense
512	Utilities Expense
514	Repair and Maintenance Expense
521	Salaries Expense
532	Bad Debt Expense
540	Interest Expense
541	Depreciation Expense
559	Miscellaneous Expenses
893	Loss on Disposal of Property, Plant, and Equipment
910	Income Tax Expense

annual maintenance expenditures