Plant assets often require expenditures subsequent to acquisition. It is important that they be accounted for properly. Any errors will affect both the balance sheets and income statements for a number of years.
For each of the following items, indicate whether the expenditure should be capitalized (C) or expensed (E) in the period incurred.
(a) __________ Expenditure that increases the efficiency and effectiveness of a productive asset and increases the asset’s salvage value.
(b) __________ Improvement.
(c) __________ Replacement of a minor broken part on a machine.
(d) __________ Expenditure that increases the useful life of an existing asset.
(e) __________ Expenditure that increases the efficiency and effectiveness of a productive asset but does not increase its salvage value.
(f) __________ Interest on borrowing necessary to finance a major overhaul of machinery. The overhaul extended the life of the machinery.
(g) __________ Ordinary repairs.
(h) __________ Improvement to a machine that increased its fair market value and its production capacity by 30% without extending the machine’s useful life.
(i) __________ Expenditure that increases the quality of the output of the productive asset.