Question

An improvement made to a machine increased its fair value and its production ca capacity by 25% without extending the machine's useful life. The cost of the improvement should be:___________ a) allocated between accumulated depreciation and the machine account. b) capitalized in the machine account c) expensed d) debited to accumulated depreciation.

Answer 1

Answer: B. Capitalized in the machine account

Explanation:

To capitalized an equipment or asset in this case a machine, is to put the equipment on the balance sheet of expensing. When a piece of equipment is bought for $500 , rather than to report it as a $500 expense immediately, it will be listed in the balance sheet as a $500 asset.

The machine in this case the machine increased it production capacity by 25% without expanding its useful life, the cost of improvement is " capitalized in the machine account ".