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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

Quality Move Company made the following expenditures on one of its delivery trucks:

Mar. 20. Replaced the transmission at a cost of $1,890.
June 11. Paid $1,350 for installation of a hydraulic lift.
Nov. 30. Paid $55 to change the oil and air filter.

Prepare journal entries for each 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 prepare: the journal entries for each expenditures.

Explanation

Record the journal entry for capital expenditure incurred for transmission.

Date Account Titles and Explanation Post Ref. Debit ($) Credit ($)
March 20 Accumulated Depreciation-Delivery Truck                                                    1,890
     Cash                 1,890
(To record the capital expenditure incurred for transmission.)

Table (1)

  • Accumulated Depreciation-Delivery Truck is a contra-asset and is decreased due to the amount spent to repair the transmission extends the useful life of the delivery truck. Therefore, Accumulated Depreciation-Delivery Truck account is debited with $1,890.
  • Cash is an asset and is decreased due to the expense paid in cash. Therefore, Cash account is credited with $1,890.

Record the journal entry for revenue expenditure incurred for installing a hydraulic lift.

Date Account Titles and Explanation Post Ref. Debit ($) Credit ($)
June 11 Delivery Truck                                                    1,350
     Cash                 1,350
(To record the revenue expenditure incurred for installation of hydraulic lift...

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