Explain to Craig the following: oWhy it is it important to distinguish between expenses that need to be capitalized and expenses that need to be expensed. oWhat the underlying fundamental concept is that governs what expenses should be capitalized and what should be expensed. oGive an example of a company that experienced financial difficulty because of capitalizing expenses that should have been expensed. •The ABC car repair shop, a former client of yours, purchased a machine on January 1, 20X1, at a net cost of $65,000. At the end of the 4-year life, it expected that the machine would have a salvage value of $1,000. It also estimated that the machine would run for 13,000 hours during its 4-year life. The company's fiscal year ends on December 31.'
Using the following information, compute depreciation for this machine for each of the 4 years using each of the following methods: oStraight-line method oSum-of-years method oDouble-declining method oUnits-of-production Year Machine Hours 20X1 2,000 20X2 3,500 20X3 1,500 20X4 6,000 •The ABC car repair shop purchased a machine in 20X1 at a cost of $20,000. The tractor was sold for $2,000 in 20X3. Depreciation recorded through the disposal totaled $16,000. oPrepare the journal entry to record the sale. oIf the machine was sold for $10,000, what will the entry be? •The ABC car repair shop traded an old machine for a newer model. The old model's book value was $150,000 (original cost $350,000, less $200,000 accumulated depreciation) and its fair value was $200,000. ABC paid $40,000 to complete the exchange. oPrepare the journal entry to record the exchange?