Sellers Construction Company purchased a compressor for $101,700 cash. It had an estimated useful life of four years and a $11,700 salvage value. At the beginning of the third year of use, the company spent an additional $7,980 related to the equipment. The company's financial condition just prior to this expenditure is shown in the horizontal statements model. Required Record the $7,980 expenditure in the statements model under each of the following independent assumptions: (In the Statement of Cash Flows column, use the initials "OA" for operating activities, "FA" for financing activities, and "IA" for investing activity. Enter any decreases to account balances and cash outflows with a minus sign. Not all cells require input.) a. The expenditure was for routine maintenance. b. The expenditure extended the compressor's life. c. The expenditure improved the compressor's operating capacity. Balance a b. C. Cash Assets + 13,120 + + + + Balance Sheet Book Value of Compressor 56,700 = = = = SELLERS CONSTRUCTION COMPANY Horizontal Statements Model Stockholders' Equity Common Stock + 23,000 + + + + Retained Earnings 46,820 Revenue Income Statement Expenses Net Income Statement of Cash Flows
Sellers Construction Company purchased a compressor for $101,700 cash. It had an estimated useful life of four years and a $11,700 salvage value. At the beginning of the third year of use, the company spent an additional $7,980 related to the equipment. The company's financial condition just prior to this expenditure is shown in the horizontal statements model. Required Record the $7,980 expenditure in the statements model under each of the following independent assumptions: (In the Statement of Cash Flows column, use the initials "OA" for operating activities, "FA" for financing activities, and "IA" for investing activity. Enter any decreases to account balances and cash outflows with a minus sign. Not all cells require input.) a. The expenditure was for routine maintenance. b. The expenditure extended the compressor's life. c. The expenditure improved the compressor's operating capacity. Balance a b. C. Cash Assets + 13,120 + + + + Balance Sheet Book Value of Compressor 56,700 = = = = SELLERS CONSTRUCTION COMPANY Horizontal Statements Model Stockholders' Equity Common Stock + 23,000 + + + + Retained Earnings 46,820 Revenue Income Statement Expenses Net Income Statement of Cash Flows
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
Related questions
Concept explainers
Depreciation Methods
The word "depreciation" is defined as an accounting method wherein the cost of tangible assets is spread over its useful life and it usually denotes how much of the assets value has been used up. The depreciation is usually considered as an operating expense. The main reason behind depreciation includes wear and tear of the assets, obsolescence etc.
Depreciation Accounting
In terms of accounting, with the passage of time the value of a fixed asset (like machinery, plants, furniture etc.) goes down over a specific period of time is known as depreciation. Now, the question comes in your mind, why the value of the fixed asset reduces over time.
Topic Video
Question
Transcribed Image Text:mework-Algo i
Sellers Construction Company purchased a compressor for $101,700 cash. It had an estimated useful life of four years and a $11,700
salvage value. At the beginning of the third year of use, the company spent an additional $7,980 related to the equipment. The
company's financial condition just prior to this expenditure is shown in the horizontal statements model.
Required
Record the $7,980 expenditure in the statements model under each of the following independent assumptions: (In the Statement of
Cash Flows column, use the initials "OA" for operating activities, "FA" for financing activities, and "IA" for investing activity. Enter
any decreases to account balances and cash outflows with a minus sign. Not all cells require input.)
a. The expenditure was for routine maintenance.
b. The expenditure extended the compressor's life.
c. The expenditure improved the compressor's operating capacity.
Balance
a.
b.
C.
Cash
Assets
13,120 +
+
+
+
Balance Sheet
Book Value of
Compressor
56,700
11
HER
11 11
SELLERS CONSTRUCTION COMPANY
Horizontal Statements Model
Stockholders' Equity
Common
Stock
23,000 +
25
Retained
Earnings
Saved
Q Search
46,820
< Prev
*****
Revenue
lij
Income Statement
-
1
15 of 19
1
Expenses
Next >
Net
Income
O
W
Statement of Cash
Flows
Help
S
Expert Solution
Step 1
In accounting, when any expenditure is incurred on a capital asset that improves the efficiency or operating capacity of the asset or increases the economic life of the asset then that expense is capitalized and added to the value of the asset and not be treated as a normal expense under income statement as it is an investing activity. But when an expense is incurred as a routine maintenance and repair expense then it will be treated under the income statement as an operating activity.
Trending now
This is a popular solution!
Step by step
Solved in 2 steps with 1 images
Knowledge Booster
Learn more about
Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, accounting and related others by exploring similar questions and additional content below.Recommended textbooks for you
Accounting
Accounting
ISBN:
9781337272094
Author:
WARREN, Carl S., Reeve, James M., Duchac, Jonathan E.
Publisher:
Cengage Learning,
Accounting Information Systems
Accounting
ISBN:
9781337619202
Author:
Hall, James A.
Publisher:
Cengage Learning,
Accounting
Accounting
ISBN:
9781337272094
Author:
WARREN, Carl S., Reeve, James M., Duchac, Jonathan E.
Publisher:
Cengage Learning,
Accounting Information Systems
Accounting
ISBN:
9781337619202
Author:
Hall, James A.
Publisher:
Cengage Learning,
Horngren's Cost Accounting: A Managerial Emphasis…
Accounting
ISBN:
9780134475585
Author:
Srikant M. Datar, Madhav V. Rajan
Publisher:
PEARSON
Intermediate Accounting
Accounting
ISBN:
9781259722660
Author:
J. David Spiceland, Mark W. Nelson, Wayne M Thomas
Publisher:
McGraw-Hill Education
Financial and Managerial Accounting
Accounting
ISBN:
9781259726705
Author:
John J Wild, Ken W. Shaw, Barbara Chiappetta Fundamental Accounting Principles
Publisher:
McGraw-Hill Education