Rockport Manufacturing is a company that makes rock sculptures for decorative la

Question

Rockport Manufacturing is a company that makes rock sculptures for decorative landscaping. Rockport had the following property, plant, and equipment transactions during the year. For each transaction, decided whether the transactions should be capitalized, expensed, depreciated, amortized, or depleted. Each accounting treatment may be used once, more than once, or not at all. Transaction Treatment Amount $ 8,500 2 Painting all of the ceiling tiles in the hallways and common$8,500 1 Cost to build a parking lot for the new warehouse areas of the property 3 Replace the cooling system in the company's current facility$ 33,000 with a more modem and fuel efficient model. 415 new desk-top computers for support personnel 5 New process costing software - this software will need to be $ 22,500 $ 12,000 replaced in 5 years. 6Replacing office windows cracked as a result of an explosion at 16,000 a neighboring manufacturing plant

Explanation / Answer

1. Cost to build a parking lot for the new warehouse needs to be capilalized as land improvement. In future years this needs to be depreciated since parking lots do wear out and must be depreciated over its life.

2. Painting the ceiling tiles and common areas need to be expensed since this doesnot increase the profit earning capacity of the company and neither does it create and asset. It is merely maintainence. Thus, only to be expensed.

3. Cost of Replacing the cooling system needs to be capitalized since it will use less fuel and expense of the company decrease and profit wlll increase eventually. Thus, the same needs to be capitalized and depreciated over its useful life.

4. Desktop computers needs to be capitalized since it is purchasing of an asset for business use and not for resale.

5. Cost of new process costing Software needs to be amortized over its life i,e, 5 years. The term amortize is usually applied in this case to intangible assets such as software and intellectual properties. Unlike depreciation, in amortization, only the straight line method is used and usually with no residual value.

6. Replacing office windows cracked as a result of an explosion is to be expensed since this is merely putting back the windows and no efficiency is increasing or cost decreasing as result. Thus, needs to be expensed. Just bringing back things to original form is always revenue expenditure.

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