Such overhauls occur regularly at two-year intervals and have been treated as a maintenance expense in the past. Management is considering whether to capitalize this year’s $22,000 cash cost in the Cranes asset account or to expense it as a maintenance expense. Assume that the cranes have a remaining useful life of two years and no expected salvage value. Assume straight-line depreciation.

There are no requirements in the question,find them below:

Determine the amount of additional depreciation expense Webb would recognize in 2016 and 2017 if the cost were capitalized in the Cranes account.

Determine the amount of expense Webb would recognize in 2016 and 2017 if the cost were recognized as maintenance expense.

Determine the effect of the overhaul on cash flow from operating activities for 2016 and 2017 if the cost were capitalized and expensed through depreciation charges.

Determine the effect of the overhaul on cash flow from operating activities for 2016 and 2017 if the cost were recognized as maintenance expense.

Additional depreciation of $11000 for both years

$22000 additional expense would be recognized in the first year and none in the second year.

No impact on cash flow from operating activities in both years

$22000 reduction in cash flow from operating activities

Explanation

If the costs of overhaul were capitalized in cranes account,there would additional depreciation of $11000($22000/2) in both years

If the costs of overhaul were expensed in the first year,the impact on expenses in that year would an increase of $22000 and no impact in the second year.

If the costs of overhaul were capitalized there would be no impact on cash flow from operating activities in both years,however,there would be increase in capital expenditure of $22000 under cash flow from investing activities.

If the costs of overhaul were expensed,there would an reduction of $22000 in cash flow from operating activities in year 1