Fisher Apartments purchased an apartment building to rent to university students on December 15, 2011. The tenants moved in on January 1, 2012. On Super Bowl Sunday, a student punched a hole in the wall when his favorite team fumbled the ball. It cost the landlord $400 to repair the hole. How should this cost be recorded?
A) It should be recorded as part of the asset account.
B) It should be recorded as repair and maintenance expense.
C) It should not be recorded as the tenants will be charged for the damage.
D) It should not be recorded since this is an immaterial amount to the landlord.

Question

Quizplus · Accepted Answer

The cost of repairing the hole in the wall should be recorded as a repair and maintenance expense, as it is an expense incurred to maintain the rental property in good condition. It should not be recorded as part of the asset account, as the repair does not add any value to the property. While the tenants may be charged for the damage, the cost still needs to be recorded as an expense. Additionally, even though $400 may be considered a relatively small amount, it is still material to the landlord and needs to be recorded.

Fisher Apartments Purchased an Apartment Building to Rent to University