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Chapter 9: 4RQ (page 525)

What does the word capitalize mean?

Short Answer

Expert verified

Capitalized means that an asset account was debited (increased) because the company acquired an asset.

Step by step solution

01

Definition of Capitalize

The wordcapitalizeis defined as recording the acquisition of land or building or any other fixed asset by increasing a long-term fixed asset. Or it is an ordinary operating expense to be charged against revenue for the period in which it is incurred.

02

Need the Capitalizing

Need of the capitalize is used to record a cost or expenses on the balance sheet for the purpose of delaying the recognition of the expense and it’s used in corporate accounting to match the timing of cash flows. And capitalizing expenses is beneficial as companies are acquiring new assets with long-term life.

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Most popular questions from this chapter

Accounting for an intangible asset On October 1, 2018, Modern Company purchased a patent for $153,600 cash. Although the patent gives legal protection for 20 years, the patent is expected to be used for only eight years.

Requirements

1. Journalize the purchase of the patent.

2. Journalize the amortization expense for the year ended December 31, 2018. Assume straight-line amortization.

Selling an asset at gain or loss Peter Company purchased equipment on January 1, 2018, for \(28,000. Suppose Peter Company sold the equipment for \)4,000 on December 31, 2019. Accumulated Depreciation as of December 31, 2019, was $11,000. Journalize the sale of the equipment, assuming straight-line depreciation was used.

Changing an asset’s useful life and residual value Salem Hardware Consultants purchased a building for \(540,000 and depreciated it on a straight-line basis over a 40-year period. The estimated residual value is \)100,000.

After using the building for 15 years, Salem realized that wear and tear on the building would wear it out before 40 years and that the estimated residual value should be $88,000.

Starting with the 16th year, Salem began depreciating the building over a revised total life of 35 years using the new residual value. Journalize depreciation expense on the building for years 15 and 16.

How is discarding of a plant asset different from selling a plant asset?

Question: On January 1, Orange Manufacturing paid $40,000 for a patent. Although it gives legal protection for 20 years, the patent is expected to provide a competitive advantage for only eight years. Assuming the straight-line method of amortization, record the journal entry for amortization for Year 1.
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