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For each of the following transactions, state whether the cost would be capitalized (C) or recorded as an expense (E). A. Purchased a machine, $100,000; gave long-term note B. Paid $600 for ordinary repairs C. Purchased a patent for $45,300 cash D. Paid $200,000 cash for addition to old building E. Paid $20,000 for monthly salaries F. Paid $250 for routine maintenance G. Paid $16,000 for major repairs

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Principles of Accounting Volume 1

19th Edition
OpenStax
Publisher: OpenStax College
ISBN: 9781947172685
FindFindarrow_forward

Principles of Accounting Volume 1

19th Edition
OpenStax
Publisher: OpenStax College
ISBN: 9781947172685
Chapter 11, Problem 5Q
Textbook Problem
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For each of the following transactions, state whether the cost would be capitalized (C) or recorded as an expense (E).

A. Purchased a machine, $100,000; gave long-term note

B. Paid $600 for ordinary repairs

C. Purchased a patent for $45,300 cash

D. Paid $200,000 cash for addition to old building

E. Paid $20,000 for monthly salaries

F. Paid $250 for routine maintenance

G. Paid $16,000 for major repairs

To determine

Introduction:

The amount incurred to purchase a new asset or some major expense (non-routine) to enhance the productivity is known as capital expenditure, the cost for which is capitalised. Whereas an amount incurred to improve the life and capacity of an existing equipment or routine expense is known as expense.

To identify:

If the cost of each transaction would be capitalized (c) or recorded as an expense (E).

Explanation of Solution

Situation Particulars Capitalized or Expense Reason
A. Purchase a machine for $100,000 Capitalized New asset is purchased and this should be capitalized
B. Paid $600 for ordinary repair Expense The existing machine is repaired and no new asset is purchased.
C. Purchased a patent for $45,300 Capitalized Patent is an intangible fixed asset which will increase the profit in future.
D. Paid $200,000 for addition to old building Capitalized New building is purchased and assets are increased which are required to be capitalized...

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Chapter 11 Solutions

Principles of Accounting Volume 1
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