Financial Accounting: The Impact on Decision Makers
10th Edition
ISBN: 9781305654174
Author: Gary A. Porter, Curtis L. Norton
Publisher: Cengage Learning
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Chapter 8, Problem 8.11MCE
Capital versus Revenue Expenditures
On January 1, 2014, Jose Company purchased a building for $200,000 and a delivery truck for $20,000. The following expenditures have been incurred during 2016:
• The building was painted at a cost of $5,000.
• To prevent leaking, new windows were installed in the building at a cost of $10,000.
• To improve production, a new conveyor system was installed at a cost of $40,000.
• The delivery truck was repainted with a new company logo at a cost of $1,000.
• To allow better handling of large loads, a hydraulic lift system was installed on the truck at a cost of $5,000.
• The truck’s engine was overhauled at a cost of $4,000.
Required
- Determine which of those costs should be capitalized. Also record the
journal entry for the capitalized costs. Assume that all costs were incurred on January 1, 2016. - Determine the amount of
depreciation for the year 2016. The company uses the straight-line method and depreciates the building over 25 years and the truck over six years. Assume zero residual value for all assets. - How would the assets appear on the
balance sheet of December 31, 2016?
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Financial Accounting: The Impact on Decision Makers
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