Final answer:
The amount paid to install a machine is indeed capitalized as it benefits the machine's useful life, allowing the cost to be spread over this period. As such, installation costs are recognized as an investment in the company's productive capacity and are accounted for as part of the asset's value on the balance sheet.
Step-by-step explanation:
The statement that the amount paid to install a machine is capitalized because the cost benefits the useful life of the machine is true. Capitalization in accounting refers to adding an expense to the balance sheet to be written off over the useful life of the asset rather than being expensed immediately. Capitalizing the cost of installing machinery allows a company to spread out the expense over the period in which the machine will be used to generate revenue, aligning the cost with its benefits.
When firms, like the mentioned Boeing factory in Seattle, acquire capital equipment, they assess the long-term benefits and costs associated with the purchase. Installing machinery is just one part of such capital expenditures. As wages rise, and firms look to maintain productivity while controlling costs, they often turn to investing in machinery that can increase productivity with fewer hours of labor, which is a capital-intensive approach. The initial outlay, which includes not just the purchase but also the installation of the equipment, is treated as an investment in the company's productive capacity.
There are different financial mechanisms companies can use to fund such capital outlays, ranging from seeking early-stage investors to reinvesting profits, obtaining loans, or issuing stocks. These funding decisions impact the company's capital structure and how the investments are ultimately financed. When the cost of machines increases, which could be due to various reasons including high demand, inflation, or taxation, businesses might reconsider their capital-to-labor ratio and could potentially shift towards a more labor-intensive production if it becomes more cost-effective.