Reference no: EM132998697

a. Expense. Actually, this cost should be recorded as a "loss" and not as an asset because it was not an ordinary and necessary cost incurred in the acquisition (or installation) of the machine.

b. Asset. The cost of developing this intangible asset should be capitalized, and amortized over its estimated useful life or legal life, whichever is shorter.

c. Asset. Title search fees are ordinary and necessary costs incurred to acquire land, because the purchaser needs to be aware of any "clouds" to the title (i.e., potential adverse claims).

d. Expense. This is an example of an ordinary repair and maintenance expenditure. The "patch" in the roof is necessary to restore the asset to its original condition, but it does not extend the useful life or salvage value of the asset.

e. Expense. Research and development expenditures are always treated as expenses in the year incurred because it is impossible to objectively determine to what extent, if any, future period revenues will be affected by current period R & D expenditures. Advertising costs are also expensed in the year incurred, for the same reason.

Problem 1: What cost should be recorded for commercial safe?