B is corrent. Generally, an expenditure should be capitalized if it increases the original useful life of an asset or increases either the quantity or quality of services. If none of these three criteria are met, the expenditure shall be expensed because it merely maintains the asset at its current level. The old shingle roof was replaced with a fireproof tile roof; thus, the $75,000 should be capitalized. Similarly, the $35,000 cost of major improvements to the electrical wiring system should be capitalized. However, the cost of repainting the plant building ($5,000) should be expensed since it is an ordinary, regularly occurring expenditure which maintains the plant, rather than increasing either the quantity or quality of service to be provided by the plant. Therefore, the total cost capitalized is $110,000 ($75,000 + $35,000).
A is incorrect. Generally, an expenditure should be capitalized if it increases the original useful life of an asset or increases either the quantity or quality of services. If none of these three criteria are met, the expenditure shall be expensed because it merely maintains the asset at its current level. The old shingle roof was replaced with a fireproof tile roof; thus, the $75,000 should be capitalized. Similarly, the $35,000 cost of major improvements to the electrical wiring system should be capitalized. However, the cost of repainting the plant building ($5,000) should be expensed since it is an ordinary, regularly occurring expenditure which maintains the plant, rather than increasing either the quantity or quality of service to be provided by the plant. Therefore, the total cost capitalized is $110,000 ($75,000 + $35,000).
A is incorrect. Generally, an expenditure should be capitalized if it increases the original useful life of an asset or increases either the quantity or quality of services. If none of these three criteria are met, the expenditure shall be expensed because it merely maintains the asset at its current level. The old shingle roof was replaced with a fireproof tile roof; thus, the $75,000 should be capitalized. Similarly, the $35,000 cost of major improvements to the electrical wiring system should be capitalized. However, the cost of repainting the plant building ($5,000) should be expensed since it is an ordinary, regularly occurring expenditure which maintains the plant, rather than increasing either the quantity or quality of service to be provided by the plant. Therefore, the total cost capitalized is $110,000 ($75,000 + $35,000).
D is incorrect. Generally, an expenditure should be capitalized if it increases the original useful life of an asset or increases either the quantity or quality of services. If none of these three criteria are met, the expenditure shall be expensed because it merely maintains the asset at its current level. The old shingle roof was replaced with a fireproof tile roof; thus, the $75,000 should be capitalized. Similarly, the $35,000 cost of major improvements to the electrical wiring system should be capitalized. However, the cost of repainting the plant building ($5,000) should be expensed since it is an ordinary, regularly occurring expenditure which maintains the plant, rather than increasing either the quantity or quality of service to be provided by the plant. Therefore, the total cost capitalized is $110,000 ($75,000 + $35,000).
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