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Stucki Holdings Corp. incurred the following expenditures: $3,400 cost to replace the transmission in a company-owned vehicle; $16,700 cost of annual property insurance on the company’s production facilities; $14,100 cost to develop and register a design patent; $62,500 cost to add a security and monitoring system to the company’s distribution center; $700 cost to repair paint damage on a company-owned vehicle caused by normal wear and tear.
Required:
Which, if any, of these expenditures should be capitalized?

Respuesta :

Solution :

1. Nature : Cost to replace the transmission in the company owned vehicle    --- $3,400

Remarks : It is a capital expenditure as the benefit of the transmission is more than 1 year.

2. Nature : cost of annual property insurance on the company’s production facilities ---- $16,700

Remarks : Insurance is considered as an annual expense of the company and the benefits of the company. It is available only for the year of insurance and therefore it is a revenue expense.

3. Nature : cost to develop and register a design patent  --- $14,100

Remark : This expense should be capitalized as the benefits of the design is received for a longer period of time.

4. Nature :  cost to add a security and monitoring system to the company’s distribution center  --- $62,500

Remark : This expense should be capitalized as the benefits of the security as well as the monitoring is received  for more than 1 year.

5. Nature : cost to repair paint damage on a company-owned vehicle caused by normal wear and tear  --- $700

Remark : It is regular and is a maintenance expense. So this expense will not be capitalized.