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Warner Freight Lines Co. incurred the following costs related to trucks and vans used in operating its delivery service: 1. Changed the oil and greased the joints of all the trucks and vans. 2. Changed the radiator fluid on a truck that had been in service for the past four years. 3. Installed a hydraulic lift to a van. 4. Installed security systems on four of the newer trucks. 5. Overhauled the engine on one of the trucks purchased three years ago. 6. Rebuilt the transmission on one of the vans that had been driven 40,000 miles. The van was no longer under warranty. 7. Removed a two-way radio from one of the trucks and installed a new radio with a greater range of communication. 8. Repaired a flat tire on one of the vans. 9. Replaced a truck’s suspension system with a new suspension system that allows for the delivery of heavier loads. 10. Tinted the back and side windows of one of the vans to discourage theft of contents. Classify each of the costs as a capital expenditure or a revenue expenditure.

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Financial Accounting

14th Edition
Carl Warren + 2 others
Publisher: Cengage Learning
ISBN: 9781305088436

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BuyFindarrow_forward

Financial Accounting

14th Edition
Carl Warren + 2 others
Publisher: Cengage Learning
ISBN: 9781305088436
Chapter 10, Problem 4E
Textbook Problem
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Warner Freight Lines Co. incurred the following costs related to trucks and vans used in operating its delivery service:

  1. 1. Changed the oil and greased the joints of all the trucks and vans.
  2. 2. Changed the radiator fluid on a truck that had been in service for the past four years.
  3. 3. Installed a hydraulic lift to a van.
  4. 4. Installed security systems on four of the newer trucks.
  5. 5. Overhauled the engine on one of the trucks purchased three years ago.
  6. 6. Rebuilt the transmission on one of the vans that had been driven 40,000 miles. The van was no longer under warranty.
  7. 7. Removed a two-way radio from one of the trucks and installed a new radio with a greater range of communication.
  8. 8. Repaired a flat tire on one of the vans.
  9. 9. Replaced a truck’s suspension system with a new suspension system that allows for the delivery of heavier loads.
  10. 10. Tinted the back and side windows of one of the vans to discourage theft of contents.

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

To determine

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

Explanation of Solution

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.

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

1.

Changed the oil and greased the joints of all the trucks and vans is revenue expenditure as it would improve the operational efficiency of the trucks and vans.

2.

Changed the radiator fluid on a truck that had been in service for the past four years is revenue expenditure. It is an ordinary repairs and maintenance expenditure and would provide benefits only in the current period.

3.

Installed a hydraulic lift to a van is a capital expenditure as it would improve the operational efficiency of the van.

4.

An installed security system on four of the newer trucks is a capital expenditure it would improve the productivity of the truck.

5.

Overhauled the engine on one of the trucks purchased three years ago is a capital expenditure as it would improve the operational efficiency of the truck...

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Financial Accounting
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