Refer to the information in E18-24.

Instructions

(a) Does the accounting for capitalized costs change if the contract is for 1 year rather than 3 years? Explain.

Data From E18-24

Rex’s Reclaimers entered into a contract with Dan’s Demolition to manage the
processing of recycled materials on Dan’s various demolition projects. Services for the 3-year contract include collecting, sorting, and transporting reclaimed materials to recycling centers or contractors who will reuse them. Rex’s incurs selling commission costs of £2,000 to obtain the contract. Before performing the services, Rex’s also designs and builds specialty receptacles and loading equipment that interfaces with Dan’s demolition equipment at a cost of £27,000. These receptacles and equipment are retained by Rex’s. Dan’s promises to pay a fixed fee of £12,000 per year, payable every 6 months for the services under the contract. Rex’s incurs the following costs: design services for the receptacles to interface with Dan’s equipment £3,000, loading equipment controllers £6,000, and special testing and government inspection fees £2,000 (some of Dan’s projects are on government property).