Question

Paid $40,000 cash to replace a motor on equipment that extends its useful life by four years. Paid $200 cash per truck for the cost of their annual tune-ups. Paid $175 for the monthly cost of replacement filters on an air-conditioning system. Completed an addition to a building for $225,000 cash. 1. Classify the above transactions as either a revenue expenditure or a capital expenditure. 2. Prepare the journal entries to record transactions a and d.

Answer 1

Answer and Explanation:

1. Event Nature of expenditure

The capital expenditure is the expenditure which is incurred for one time or we can say it is spent on long term assets. While on the other hand, the revenue expenditure is expenditure  which is incurred on frequent basis

Based on this, the treatment is as follows  

i. Capital expenditure

ii. Revenue expenditure

iii. Revenue expenditure

iv. Capital expenditure

2. The Journal entry is shown below:-

a. Equipment Dr, $40,000

             To Cash $40,000

(Being replacement of compressor is recorded)

Here we debited the equipment as it increased the assets and we credited the cash as  it decreased the assets

b. Building Dr,  $225,000

                 To Cash $225,000

Here we debited the equipment as it increased the assets and we credited the cash as  it decreased the assets