Mayfield’s is a restaurant chain that currently has 8 locations in Chicago. Mayfield’s is a privately held company with a September 30th fiscal year end. The company has decided to expand their restaurant operations into a new territory. During August 2022 Mayfield’s spent $200,000 on constructing a new restaurant. Mayfield’s also spent $6,000 on hiring and training new employees. The company is classifying these expenditures as start-up expenditures.
The CEO of Mayfield’s believes that the $206,000 of start-up expenditures should be recognized as an asset since the expenditures will benefit the future operations of the company for many years. The company recognized these expenditures as follows:
8/31/22 Start Up Costs (an asset) 206,000
Cash 206,000
Accounting Issue: Is Mayfield’s correctly recognizing the $206,000 of start-up costs?
a. Codification Reference:
b. Your answer/interpretation of the guidance:
c. If necessary, prepare a journal entry so the financial statements are correct as of August 31, 2022. If a journal entry is not required indicate N/A.