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On January 1, year 1, Webb Construction Company overhauled four cranes, resulting in a slight...

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Accounting

On January 1, year 1, Webb Construction Company overhauled four cranes, resulting in a slight increase in the life of the cranes. Such overhauls occur regularly at two-year intervals and have been treated as maintenance expense in the past. Management is considering whether to capitalize this years $28,670 cash cost in the Cranes asset account or to expense it as a maintenance expense. Assume that the cranes have a remaining useful life of two years and no expected salvage value. Assume straight-line depreciation.

A.Determine the amount of additional depreciation expense Webb would recognize in year 1 and year 2 if the cost were capitalized in the Cranes account.

B.Determine the amount of expense Webb would recognize in year 1 and year 2 if the cost were recognized as maintenance expense.

C.Determine the effect of the overhaul on cash flow from operating activities for year 1 and year 2 if the cost were capitalized and expensed through depreciation charges.

D.Determine the effect of the overhaul on cash flow from operating activities for year 1 and year 2 if the cost were recognized as maintenance expense.

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