a-company-replaces-worn-gears-in-a-machine-for-500-and-modifies-the-machine-to-i

Question

A company replaces worn gears in a machine for $500 and modifies the machine to increase output capacity for $2,000. How should these transactions be categorized?

Accepted Answer

Replacing gears is an ordinary repair; modifying the machine is a capital improvement.

Answer

Both transactions are capital improvements.

Answer

Both transactions are ordinary repairs.

Answer

Replacing gears is a capital improvement; modifying the machine is an ordinary repair.

A company replaces worn gears in a machine for \$500 and modifies the machine to increase output capacity for \$2,000. How should these transactions be categorized?