Question

Tools with a purchase greater than $1000 are capitalized. If I purchase a tool for $500, it will be:

a) Capitalized and recorded as an asset.
b) Recorded as a liability.
c) Expensed as a cost in the income statement.
d) Ignored in financial records due to its low cost.

Answer 1

Tools with a purchase greater than $1000 are capitalized and recorded as assets. A tool purchased for $500 would be expensed as a cost in the income statement. The correct options are a and c.

Step-by-step explanation:

When a tool with a purchase price greater than $1000 is acquired, it is capitalized and recorded as an asset. This means that it is recognized as a long-term investment and not expensed as a cost in the income statement.

In this case, since the tool is purchased for $500, it does not meet the criteria for capitalization. Therefore, it will be expensed as a cost in the income statement.

Examples of capitalized tools would be those that are purchased for $1000 or more, such as expensive machinery or equipment used for production purposes.

Hence, Options a and c are correct.