Question

An improvement made to a machine increased its fair value and its production capacity by 25% without extending the machine's useful life. The cost of the improvement should be

a. expensed.
b. debited to accumulated depreciation.
c. capitalized in the machinery account.
d. allocated between accumulated depreciation and the machinery account.

Answer 1

The cost of the improvement should be capitalized in the machinery account.

Step-by-step explanation:

The cost of the improvement should be c. capitalized in the machinery account. When a machine undergoes an improvement that increases its fair value and production capacity, the cost of the improvement is typically treated as a capital expenditure. This means that it is added to the machinery account on the balance sheet.