McClain Company incurred the following expenditures during 2019:

Apr.	9	The air conditioning system in the old manufacturing facility was replaced for $85,500. The old air conditioning system had a cost of $73,750 and a book value of $1,900. The old air conditioning system had no scrap value.
June	29	Annual maintenance of $37,000 was performed.
Sept.	12	The roof of the old manufacturing facility is replaced at a cost of $64,250. This expenditure substantially extended the life of the facility.
Dec.	28	A new wing was added to the manufacturing facility at a cost of $265,000. This expenditure substantially increased the productive capacity of the plant.

Required:

1.

Prepare journal entries to record McClains expenditures for 2019.

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.	annual maintenance expenditures

1. Prepare journal entries to record McClains expenditures for 2019.

General Journal Instructions

PAGE 10

GENERAL JOURNAL

	DATE	ACCOUNT TITLE	POST. REF.	DEBIT	CREDIT
1
2
3
4
5
6
7
8
9
10
11

2a. What is the effect on the financial statements if management had improperly accounted for the addition of the new wing to the manufacturing facility?

If the addition had been expensed instead of capitalized, assets and net income would be in 2019 and in future periods.

2b. What is the effect on the financial statements if management had improperly accounted for the annual maintenance expenditures?

If the maintenance expenditures had been capitalized, assets and net income would be in the year of the expenditure. In future periods, this asset would be depreciated, causing income to be .