Question

The Rankine Corporation reported net income of $10 million in 2016, and it appears that net income for 2017 will be the same. During 2017, the company made the following expenditures:
1. $250,000 was spent to resurface the company parking lot. The resurfacing has to be done about every five years.

2. $500,000 was spent to upgrade the company’s air filtration system in the plating department. The system worked satisfactorily, but the U.S. Department of Labor recently promulgated new rules (effective three years from today) that would have required the changes the company made voluntarily.

3. $900,000 was paid to a consultant for the design of a new manufacturing facility. The new plant was the dream of the prior CEO but has been shelved because the current CEO was uncertain about the firm’s future.
4. $600,000 was spent on the development of a new inventory control system. The system was designed to allow salespeople in the field to electronically enter orders into the system so that they could be shipped the next day. The system appeared to be on track, but another $200,000 would have to be spent before it could be demonstrated that it would function as planned.

5. The company’s Arizona plant was shut down for three months because of the slow economy. The company struggled to find ways to keep its employees busy so they could retain as many as possible. Some employees agreed to accept half pay while the company found maintenance work and training for the other employees. At the end of three months, about 85 percent of the workforce was still on the payroll when the company resumed normal production. The maintenance work done by the employees during this time cost about $1 million; the training cost the company another $800,000.

Indicate whether the above expenditures should be considered as an asset or as an expense. Be prepared to justify your answer.

Answer 1