On March 15,20X9,Clarion Company paid property taxes of $60,000 on its factory building for calendar year 20X9.On July 1,20X9,Clarion made $40,000 in unanticipated repairs to its machinery.The repairs will benefit operations for the remainder of the calendar year.What total amount of these expenses should be included in Clarion's quarterly income statement for the three months ended September 30,20X9?
A)$55,000
B)$15,000
C)$35,000
D)$40,000

Question

Quizplus · Accepted Answer

Only the property tax expense of $60,000 is a period expense and should be fully recognized in the quarter ended March 31, 20X9. The repairs expense of $40,000 is a revenue-generating expense that will benefit operations for the remainder of the year. Therefore, we need to allocate this cost to the three quarters ending June 30, September 30, and December 31, 20X9, based on the proportion of time that the machinery will be used for each quarter. Since the repairs were made on July 1, only half of the year's remaining time will be used in the third quarter. Therefore, the total amount of these expenses that should be included in the income statement for the three months ended September 30, 20X9, is:
($40,000 x 3/12) + ($40,000 x 6/12 x 1/2) = $35,000

On March 15,20X9,Clarion Company Paid Property Taxes of $60,000 on Its