Capitalize versus Expense In 2015, Autoparts Company retooled its production line in order to accommodate the...
Capitalize versus Expense
In 2015, Autoparts Company retooled its production line in order to
accommodate the required changes to auto parts for new car models.
The retooling costs were capitalized to Autoparts' 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.
If Autoparts Company 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 expenses | Increase/Decrease/No effect |
| 2. | Assets | Increase/Decrease/No effect |
| 3. | Cash flow from operations | Increase/Decrease/No effect |
| 4. | Liabilities | Increase/Decrease/No effect |
| 5. | Operating revenue (Increase/Decrease/No effect) |
Homework Answers
| 1. | Operating expenses | Increase |
| 2. | Assets | Decrease |
| 3. | Cash flow from operations | Decrease |
| 4. | Liabilities | No effect |
| 5. | Operating revenue | Decrease |
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Capitalize versus Expense
In 2015, Autoparts Company retooled its production line in order to
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