Which costs will be capitalized by United related to its 23,000 iPhone 6 Plus handsets for flight attendants?

Source: Apple Store

In 2015, United Continental Holdings, Inc., (UAL), will be purchasing 23,000 iPhone 6 Plus handsets for its flight attendants to use in-flight for retail transactions.  The phones will also be used for email, United’s internal network, and various policies and procedures manuals.

Beyond the cost of the iPhone 6 Plus handsets, United will have to pay sales tax on the total purchase.  Assume that United is also paying a software development firm to develop custom apps for its iPhones.  Employee training costs will be incurred by United so that flight attendants can effectively utilize the iPhones in-flight.

United will need to pay monthly data charges on the iPhone 6 Plus handsets.  United can also purchase AppleCare+ Protection Plan contracts that cover the handsets for accidental damage, battery replacement, and other hardware issues for two years. AppleCare+ contracts must be purchased within 60 days of the purchase of the handsets and are about $99 per handset.

Questions

1. What does the term “capitalize” mean? What conditions must be met in general for a company to capitalize a cost item?
2. Which of the costs associated with the iPhone 6 Plus handsets will most likely be CAPITALIZED by United?
3. Which of the costs associated with the iPhone 6 Plus handsets will most likely be EXPENSED by United?

Instructor Resources

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