Okotoks Ltd. (Okotoks) is in the process of finalizing its cash flow statement for 2017. The statement has been completely prepared except for some costs that the controller isn't sure whether certain costs should be capitalized or expensed. Normally relatively minor, this year these costs were significant and the classification will have an impact on the financial statements. The preliminary net loss, before accounting for these costs, is $12,500. The repair/betterment costs for the year are $105,000. The nature of the costs is ambiguous so the controller will likely be able to capitalize or expense them. The costs aren't reflected in the preliminary cash flow statement shown below:

kotoks Ltd.

Cash Flow Statement for the Year Ended April 30, 2017

Cash from operations

Net loss......................$

Add: Depreciation.................137,500

Less: Gain on sale of capital assets............47,5000

Less: Net increase in non-cash working capital...... 56,000

Cash from operations

Investing activities

Proceeds from the sale of capital assets......155,000

Purchase of capital assets............... (662,500)

Cash from (used for) investing activities

Financing activities

Increase in long-term debt...............500,000

Repayment of long-term loan..............(375,000)

Sale of common stock ................525,000

Cash from (used for) financing activities

Change in cash during 2017

Cash and equivalents, beginning of the year....... 49,000

Cash and equivalents, end of the year.............$

Required:

a. Complete the cash flow statement (shaded boxes) assuming that

i. The costs are capitalized

ii. The costs are expensed

Assume that if the costs are capitalized it will be necessary to depreciate $30,000 in 2017.

b. Compare the two cash flow statements. How is your evaluation of Okotoks influenced by them?

c. How are the balance sheet and income statement affected by the different accounting treatments for the costs?

d. Assuming that the controller is correct in her belief that the costs can be reasonably classified as either repairs or betterments, what factors would you advise the controller to consider in making her decision? Explain.