Question

The old Metropolitan Theater, which had been unused for years, was purchased for $1, renovated at a cost of $3.5 million, and then reopened for business. The renovation cost should be ______.

Answer 1

The renovation cost should be capitalized, and therefore included in the cost basis of the asset (in this case the theater).

Step-by-step explanation:

Capitalized costs refers to cost associated with the purchase of a fixed asset. Capitalized costs increase the cost basis of the fixed assets since they are added to the purchase cost. E.g. a company buys a new machine, besides the cost of the machine itself, the cost basis must include delivery charges, installation charges, etc.