Question

Demmert Manufacturing incurred the following expenditures during the current fiscal year: annual maintenance on its equipment, $5,400; remodeling of offices, $22,000; rearrangement of the shipping and receiving area resulting in an increase in productivity, $35,000; addition of a security system to the manufacturing facility, $25,000.  How should Demmert account for each of these expenditures?

Please show work.

Answer 1

Accounting of the expenses incurred by the Demmert Manufacturing as below:

Date	Particulars	Lf. No	Debit $	Credit $
1	Machinery expenses		5,400
	Cash			5,400
	(To record machinery expense)
2	Buildings		22,000
	Cash			22,000
	(To record capitalized expense)
3	Shipping expense		35,000
	Cash			35,000
	(To record capitalized shipping expense)
4	Security system		25,000
	Cash			25,000
	(To record capitalized expense)
5	Accumulated Depreciation - Shipping		35,000
	Cash			35,000
	(Due to reduction of accumulated depreciation)

Note:

• Expenditure increases future benefits capitalized and depreciate over the future periods benefited.

• The costs of addition usually are capitalized. The capitalized cost of addition is depreciated over the remaining useful life of the original asset or its own useful life whichever is shorter.