How will a $37 million expansion to retool an assembly plan impact GM’s financial statements?

Source: http://www.buick.com

General Motors (GM) is considering a $37-million expansion to one of its Michigan assembly plants.  The Buick Enclave, Chevrolet Traverse, and GMC Acadia crossovers are built at the Lansing Delta Township plant. GM officials have not announced what the $37-million expansion will include but they have applied for tax incentives from the City of Lansing and have indicated that the expansion would include facility improvements.

Assume that GM spends the $37 million in 2015 to retool the Lansing plant to manufacture the Chevrolet Camaro.

Questions

1. Would the $37 million be treated as an expense or as a capital expenditure? Why?
2. What impact will the $37 million have on GM’s 2015 income statement? Explain.
3. What impact will the $37 million have on GM’s 2015 balance sheet? Explain.
4. Now think about GM’s 2016 financial statements. Assuming that GM makes the $37 million investment in 2015, how will its income statement and balance sheet be impacted in 2016? Explain.

Instructor Resources

These resources are provided to give the instructor flexibility for use of Accounting in the Headlines articles in the classroom. The blog posting itself can be assigned via a link to this site OR by distributing the student handout below. Alternatively, the PowerPoint file below contains a bullet point overview of the article and the discussion questions. The YouTube video link below is a narration of the blog post article (no discussion questions are included in the YouTube video; those can be assigned separately.)

• Student handout (pdf) (word) (contains entire blog posting + discussion questions)
• PowerPoint file (brief article overview + discussion questions)
• YouTube video (narrated article in shareable YouTube link)

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