Sellers Construction Company purchased a compressor for $114,500 cash. It had an estimated useful life of four years and a $9,900 salvage value. At the beginning of the third year of use, the company spent an additional $7,410 related to the equipment. The company's financial condition just prior to this expenditure is shown in the first line of the table. Required Record the $7,410 expenditure in the statements model under each of the following independent assumptions: (In the Cash Flow column, use the initials OA for operating activities, FA for financing activities, or IA for investing activity. If there is no effect on the Cash Flow, leave the cell blank. Enter any decreases to account balances with a minus sign. Not all cells will require entry.) a. The expenditure was for routine maintenance. b. The expenditure extended the compressor's life. c. The expenditure improved the compressor's operating capacity. 120 Assets Cash + 13,780 + Book Value of Compressor 62,200 = = Balance Sheet Liabilities SELLERS CONSTRUCTION COMPANY Horizontal Statements Model Stockholders' Equity Retained Earnings Common Stock + 23,100 + 52,880 Revenue Income Statement I Expenses 11 Net Income Statement of Cash Flows

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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.

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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.