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

Photo of iPhone 6 Plus

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

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.

  • Student handout (pdf) (word) (contains entire blog posting + discussion questions)
  • PowerPoint file (brief article overview + discussion questions)

Creative Commons License

This work is licensed under a Creative Commons Attribution-NonCommercial 3.0 Unported License.

About Dr. Wendy Tietz, CPA, CMA, CGMA

Dr. Wendy Tietz is a professor of accounting at Kent State University in Kent, Ohio, USA. She is also a textbook author with Pearson Prentice-Hall.

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