Question

Paid $42,000 cash to replace a motor on equipment that extends its useful life by four years. Paid $210 cash per truck for the cost of their annual tune-ups. Paid $168 for the monthly cost of replacement filters on an air-conditioning system. Completed an addition to a building for $236,250 cash. 1. Classify the above transactions as either a revenue expenditure or a capital expenditure. 2. Prepare the journal entries to record the four transactions from part 1.

Answer 1

Answer:

Part 1

Replacement of motor on equipment - Capital Expenditure

Cost of Initial tune -ups - Capital Expenditure

Replacement filters on an air-conditioning system - Revenue Expenditure

Addition to a Building - Capital Expenditure

Part 2

Item 1

Debit : Equipment $42,000

Credit : Cash $42,000

Item 2

Debit : Truck $210

Credit : Cash $210

Item 3

Debit : Replacement expense $168

Credit : Cash $168

Item 4

Debit : Buildings $236,250

Credit : Cash $236,250

Explanation:

Capital Expenditure is any expenditure incurred to enhance the economic value of an asset. This include improvements or costs directly incurred to place the asset in the location and condition intended for use by the management.

Revenue Expenditure is any expenditure incurred to maintain daily operations of the company. This includes repairs and maintenance expenses.