These expenditures are capitalized on the balance sheet and result in a debit to property, plant & equipment

• Increase capacity or extend useful life
• Cost is added to an asset account

These are operating expenses because they benefit the current period & are matched with sales.

• Do not extend capacity or useful life
• Maintain or restore working order
• Cost is recorded as an expense

#1) If you are a plant manager and receive a substantial bonus based on adherence to the Operating Budget, what would you like the accountant to do with hours spent by your workforce in training in order to operate and debug a new capital project? What would be your arguments, now that you know a little about accounting?

#2) Indicate which of the following costs should be expensed when incurred.

(a) $13,000 paid to rearrange and reinstall machinery.

(b) $200,000 paid for addition to building

(c) $200 paid for tune-up and oil change on delivery truck

(d) $7,000 paid to replace a wooden floor with a concrete floor

(e) $2,000 paid for a major overhaul on a truck, which extends the useful life

#3) Columbia Company, which manufactures machine tools, had the following transactions related to plant assets in 2017.

On June 2, 2017, Columbia purchased a stampingmachine at a retail price of $12,000.

Columbia paid 6% sales tax on this purchase.

Columbia paid a contractor $2,800 for a specially wired platform for the machine, to ensurenoninterrupted power to the machine.

Columbia estimates the machine will have a 4-year useful life, with a salvage value of $2,000 at the end of 4 years.

At what amount should Columbia record the acquisition?