On January 1, Year 2 Boothe Company paid $12,000 cash to extend the useful life of a machine. Which of the following statements is true regarding the financial statement effects of this expenditure?
A)Book value of machine decreases
B)Retained earnings decreases
C)Book value of machine increases
D)Retained earnings increases

Question

Quizplus · Accepted Answer

By paying $12,000 to extend the useful life of the machine, Boothe Company has capitalized the expenditure and increased the book value of the machine. This does not have an immediate effect on retained earnings.

On January 1, Year 2 Boothe Company Paid $12,000 Cash