Final answer:
Rossi Imports is correct to expense the $48,000 two-year lease as an asset over the lease period, which is in line with the matching principle and accrual basis of accounting, ensuring expenses align with revenue generation.
Step-by-step explanation:
I agree with Rossi Imports' decision to record the $48,000 two-year warehouse lease as an asset to be expensed equally over the two-year period. This approach is aligned with the matching principle in accounting, which dictates that expenses should be recorded in the same period as the revenues they help to generate. In this case, it's assumed that the use of the warehouse will directly relate to the generation of revenues over the two-year lease period.
Rossi Imports follows the concept of fixed costs, which are expenses that do not fluctuate with the level of production or sales. Examples of fixed costs include lease payments for factories or retail spaces, equipment purchases, and research and development expenses. By expensing the lease payment over two years, Rossi is distributing the cost in alignment with the use of the space.
To adhere to proper accounting practices, particularly the accrual basis of accounting, spreading out the cost evenly ensures that accounting figures represent the true financial position and performance of the company across the relevant accounting periods. This helps to provide a more accurate picture of the company's financial health for stakeholders.