Kowalczyk Company spends $30,000 for manufacturing equipment. When should the cost of the equipment be expensed?

Question

Quizplus · Accepted Answer

The cost of the equipment should be expensed over the period that it will be used, which is also known as its useful life. This is consistent with the matching principle of accounting, where expenses should be recognized in the same period as the revenue they help to generate. Expensing the entire cost in the first year (choice B) would not accurately reflect the benefit received from the equipment over its useful life, and paying in cash (choice A) is not relevant to when the expense should be recognized. Finally, performance obligation (choice D) is related to revenue recognition, not expense recognition.

Kowalczyk Company Spends $30,000 for Manufacturing Equipment