Redline Publishers, Inc. creates a wide range of publications, from computer software instruction manuals to guides detailing how to set up and run massive industrial machines. The company's financial statement showed total assets of $62 million and total liabilities of $40 million as of the end of the previous year.. There was an increase of around 3 percent from the previous year in the income statement's net income of $1.1 million for 2016. The company's effective tax rate is 30%. Several investments were made to upgrade the production equipment of the firm at the end of 2016. The company's materiality level for such expenses is $750, hence none of these expenses were capitalized. Despite the fact that the overhauls prolonged the equipment's useful life, the costs were deducted rather than capitalized. The controller of the corporation, John Henderson, is concerned about how the overhaul costs will be handled. Despite the fact that no one expense went beyond the'materiality' criterion of $750,' the overall amount spent was $70,000. Required: Should the costs of the overhaul be capitalized or deducted from the operating budget?
Redline Publishers, Inc. creates a wide range of publications, from computer software instruction manuals to guides detailing how to set up and run massive industrial machines. The company's financial statement showed total assets of $62 million and total liabilities of $40 million as of the end of the previous year.. There was an increase of around 3 percent from the previous year in the income statement's net income of $1.1 million for 2016. The company's effective tax rate is 30%. Several investments were made to upgrade the production equipment of the firm at the end of 2016. The company's materiality level for such expenses is $750, hence none of these expenses were capitalized. Despite the fact that the overhauls prolonged the equipment's useful life, the costs were deducted rather than capitalized. The controller of the corporation, John Henderson, is concerned about how the overhaul costs will be handled. Despite the fact that no one expense went beyond the'materiality' criterion of $750,' the overall amount spent was $70,000. Required: Should the costs of the overhaul be capitalized or deducted from the operating budget?
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