Question

Classy Cooks did a major overhaul of their ovens, which extended the useful life of the ovens by 4 years. The journal entry to record this included a debit to repairs expense. This entry is:

A. correct, as this is an example of a betterment.

B. incorrect, and as a result assets will be overstated.

C. correct, as this is an example of an ordinary repair.

D. incorrect, and as a result net income will be understated.

Answer 1

The journal entry to record the major overhaul of the ovens by Classy Cooks is incorrect, and as a result, assets will be overstated.

Step-by-step explanation:

The correct answer is B. incorrect, and as a result assets will be overstated.

An ordinary repair is one that maintains or restores an asset to its normal operating condition. In this case, the major overhaul of the ovens extends their useful life, which goes beyond an ordinary repair. It is considered a betterment, as it improves the quality or efficiency of the ovens.

By debiting the repairs expense, Classy Cooks incorrectly categorizes the major overhaul as a regular repair, which causes assets to be overstated. This is because the cost of the major overhaul should be capitalized as an improvement to the ovens' useful life, rather than expensed as a repair.