Deskin Company purchased a new machine to be used in its operations. The new machine was delivered by the supplier, installed by Deskin, and placed into operation. It was purchased under a long-term payment plan for which the interest charges approximated the prevailing market rates. The estimated useful life of the new machine is 10 years, and its estimated residual (salvage) value is significant. Normal maintenance was performed to keep the new machine in usable condition. Deskin also added a wing to the manufacturing building that it owns. The addition is an integral part of the building.
Furthermore, Deskin made significant leasehold improvements to office space used as corporate headquarters.
1. What costs should Deskin capitalize for the new machine?
2. Explain how Deskin should account for the normal maintenance performed on the new machine.
3. Explain how Deskin should account for the wing added to the manufacturing building. Where should the added wing be reported on Deskin’s financial statements?
4. Explain how Deskin should account for the leasehold improvements made to its office space. Where should the leasehold improvements be reported on Deskin’s financial statements?