Reference no: EM132635383

Question - Capitalize versus Expense

During the year, Custom Parts Co. retooled its production line in order to accommodate the required changes to auto parts for new vehicle models. The retooling costs were capitalized to Custom Parts' balance sheet. Company observers suggested that the retooling costs should have been charged against income at the time of purchase rather than capitalized to the company's balance sheet.

Required - If Custom Parts Co. switched from capitalizing and amortizing the costs of retooling to immediately expensing them (for reporting to shareholders only), indicate how the following financial statement items would be affected:

1. Operating revenue

2. Operating expenses

3. Cash flow from operations

4. Assets

5. Liabilities