The replacement of a major component increased the productive capacity of production equipment from 10 units per hour to 18 units per hour. The expenditure should be debited to:
A) Repairs expense.
B) Maintenance expense.
C) Equipment.
D) Gain from repairs

Question

Quizplus · Accepted Answer

The replacement of a major component has increased the productive capacity of production equipment, therefore it can be considered as an improvement or enhancement of the equipment. Hence, the expenditure should be debited to the Equipment account rather than being expensed as Repairs or Maintenance. Similarly, since the increased capacity of the equipment results in increased production and potential profitability, it cannot be classified as a Gain on Repairs.

The Replacement of a Major Component Increased the Productive Capacity