Crouch Apartments purchased an apartment building to rent to university students on December 15, 2012.The tenants moved in on January 1, 2013.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?

Question

Quizplus · Accepted Answer

The cost of repairing the hole should be recorded as a repair and maintenance expense because it was a necessary repair caused by normal wear and tear of the rented property. It should not be recorded as an asset because it does not increase the value of the property. It should also not be assumed that the tenants will pay for the damage, as their responsibility for the cost depends on the terms of their lease agreement. Finally, even though $400 might be considered a small amount, it still represents a real cost for the landlord and should be recorded accordingly.

Crouch Apartments Purchased an Apartment Building to Rent to University