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7. Maintenance Costs Fargo Co. has recently acquired a new stamping machine for use in...

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Accounting

7. Maintenance Costs Fargo Co. has recently acquired a new stamping machine for use in its manufacturing facility. Certain components of this machine are prone to wear and must be replaced, on average, once every three years at a cost of $120,000. The CFO of the company has elected to accrue that maintenance activity in advance, debiting Maintenance Expense at a rate of $40,000 per year. Research the appropriate GAAP and prepare a memo to the CFO indicating whether this treatment is appropriate and citing the Codication. If it is not appropriate, illustrate the proper journal entry.

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