Business, 27.02.2020 03:49 angelalovelis

Lightfoot Corp. incurred the following expenditures: $8,000 cost of annual property insurance on the company’s warehouse; $12,000 cost to develop and register a trademark; $30,000 cost to pave the parking lot for the company’s distribution center; $2,000 cost of repairs and maintenance on the company’s lawn service equipment. The total amount of these expenditures that Lightfoot Corp. should be capitalized are?

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Answer from: caseyfriemoth1548

The total amount of expenditures that should be capitalized is;

$44,000

Explanation:

A cost or expenditure is said to be capitalized if it is recorded as fixed asset or asset, instead or an expense. It is recorded into the balance sheet instead of the income statement.

There are certain conditions an expenditure must fulfill before it is regarded as a fixed cost, and this includes;

1. The usefulness of the cost should be used in production for more than one year

2. The price of the cost exceeds the minimum limit for capitalization.

Now let us consider the expenditures one after the other and see why the choices are made on them;

a. cost of annual property insurance: insurances on properties are not recorded as fixed costs because they are costs that can be done away with, and have no direct effect on the asset of the organization. An insurance of the warehouse does not add to the worth of the warehouse, it is only used to prevent the occurrence of a future disaster, hence it is not capitalized.

b. cost developing and registering a trademark is a fixed cost because the effect of the registration lasts for more than one year, and it can be seen as part of a cost of directly setting up a company, because without a trademark, the company operates illegally, hence it is part of the company's virtual asset.

c. costs of paving the parking lot and repair and maintenance of lawn service equipment are capitalized because they are directly used to improve or setup the fixed assets (parking lot and lawn equipment) of the company, and their value can last for more than one year.

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Answer from: Quest

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Lightfoot Corp. incurred the following expenditures: $8,000 cost of annual property insurance on the...