Which of the following would be capitalized (rather than expensed) because it has a useful life of more than one year?

Which of the following would be capitalized (rather than expensed) because it has a useful life of more than one year?

• A. Factory equipment
• B. Employee salaries
• C. COGS
• D. Office supplies

Answer: (A)

Costs that provide benefits beyond the current year are capitalized rather than expensed. Factory equipment has a useful life extending over many years, so it’s recorded as a long-term asset and then depreciated over that expected life. This is different from salaries, which are incurred in the period paid and expensed; COGS reflects costs tied to production for the period and is expensed when incurred; and office supplies are typically expensed as they are used (they don’t usually become long-term assets). So, the item that would be capitalized is factory equipment.

Costs that provide benefits beyond the current year are capitalized rather than expensed. Factory equipment has a useful life extending over many years, so it’s recorded as a long-term asset and then depreciated over that expected life. This is different from salaries, which are incurred in the period paid and expensed; COGS reflects costs tied to production for the period and is expensed when incurred; and office supplies are typically expensed as they are used (they don’t usually become long-term assets). So, the item that would be capitalized is factory equipment.