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Accounting

27th Edition
WARREN + 5 others
ISBN: 9781337272094

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BuyFindarrow_forward

Accounting

27th Edition
WARREN + 5 others
ISBN: 9781337272094
Textbook Problem

Capital and revenue expenditures

Jackie Fox owns and operates Platinum Transport Co. During the past year, Jackie incurred the following costs related to an 18-wheel truck:

  1. 1. Changed engine oil.
  2. 2. Installed a television in the sleeping compartment of the truck.
  3. 3. Installed a wind deflector on top of the cab to increase fuel mileage.
  4. 4. Modified the factory-installed turbo charger with a special-order kit designed to add 50 more horsepower to the engine performance.
  5. 5. Replaced a headlight that had burned out.
  6. 6. Replaced a shock absorber that had worn out.
  7. 7. Replaced fog and cab light bulbs.
  8. 8. Replaced the hydraulic brake system that had begun to fail during his latest trip through the Rocky Mountains.
  9. 9. Removed the old radio and replaced it with a new communications module.
  10. 10. Replaced the old radar detector with a newer model that is fastened to the truck with a locking device that prevents its removal.

Classify each of the costs as a capital expenditure or a revenue expenditure.

To determine

Capital expenditure: It refers to the amount spent on acquiring, maintaining, and improving the fixed assets that increases its productivity or extends useful life. It provides benefits in the future period.

Revenue expenditure: It refers to the amount spent on normal maintenance and repairs of fixed assets to generate revenue in the current period. It provides benefits only in the current period.

To classify: each of the given costs as a capital expenditure or a revenue expenditure.

Explanation

Classifyeach of the given costs as a capital expenditure or a revenue expenditure.

1.

Changed engine oil is a revenue expenditure. It is an ordinary maintenance expenditure and would provide benefits only in the current period.

2.

Installed a television in the sleeping compartment of the truck is a capital expenditure as it would improve the productivity of the truck.

3.

Installed a wind deflector on top of the cab to increase fuel mileage is a capital expenditure as it would improve the operational efficiency of the cab.

4.

Modified the factory-installed turbo charger with a special-order kit designed to add 50 more horsepower to the engine performance is a capital expenditure as it would improve the operational efficiency of the engine.

5.

Replaced a headlight that had burned out is a revenue expenditure. It is an ordinary maintenance expenditure and would provide benefits only in the current period...

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