LimeBike, located in San Mateo, California, is a startup founded in 2017. Its mission is to make shared bicycles accessible and affordable. The company has taken the basic idea of shared bicycles and eliminated the need to return the bike to a docking station, which may not be near the cyclist’s destination. LimeBike charges $1 per 30 minutes of riding, or $0.50 per ride for students.
To use LimeBike, you first use the LimeBike app to locate one of the citrus-colored bikes near your location. Once you are at the bike, you scan the QR code on the bike or enter the bike’s plate number into the app to unlock the bike. When you are finished using the bike, you park the bike by a bike rack or post––anywhere that is legal and visible. Once you press down the back-wheel lock, the trip is finalized and your payment is processed by LimeBike’s app.
LimeBike does not depend on government funding, making it appealing to cities with tight budgets. In mid-2017 the company raised $12 million from investors to expand its operations. It is set to begin operating in as-of-yet undisclosed cities sometime in 2017 or 2018. Assume that LimeBike has officially begun operating its bike sharing program.
1. For each of the following items, identify whether the cost of the item would be expensed or capitalized at LimeBike:
a. Customized bikes from Trek and Specialized
b. Development costs of LimeBike’s app for locating, paying, and returning bikes
c. Salary of the salesperson who works to get cities to adopt LimeBike’s program
d. Replacement tires for bikes
e. Routine bike maintenance including chain lubrication, brake pad replacement, and drivetrain cleaning
f. Electricity and other utilities in the company’s administrative offices
2. Why does it matter whether a cost item is expensed or capitalized? Explain.
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