Reference no: EM132748058

Question: With the necessary capital in place, Highland signed a five-year lease at a disused shipyard for $7,500 per month beginning January 1, 2019. Although the location was unconventional, it was ideal for warehousing barrels and instilling the flavour of the ocean in the whisky. In addition to the lease, Highland had several other overhead fixed cost accounts (see Exhibit 4). Second-hand equipment was leased at the beginning of January 1, 2019 through a neighbouring city, resulting in a total annual cost of $50,000. In 2019, a local advertising agency was commissioned for all promotional responsibilities for a one-time fee of $75,000. This work included corporate branding and logo design, which added value to the Highland brand.

Do we capitalized the shipyard lease or expense it each month? Which one is better and why?