How should the cost of the improvements be accounted for

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Problem 1: An improvement made to an existing machine improved its functionality, increased its fair market value and its production capacity by 30 per cent and extended the machine's useful life by 5 years. How should the cost of the improvements be accounted for?

Option 1: Recorded as a decrease to retained earnings.

Option 2: Recorded as an increase in accumulated amortization.

Option 3: None of the others alternatives are correct

Option 4: Expensed on the income statement, expense.

Option 5: Capitalized on the balance sheet, asset.

Reference no: EM132671829

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