Question

Indicate whether each of the following expenditures is a revenue expenditure or a capital expenditure for Linda Company:

a. Paid 300 to replace a truck windshield that was cracked by a stone thrown up by another vehicle while the truck was being used to make a delivery.
b. Paid10 for a "no smoking" sign for the conference room.
c. Paid 900 to add a hard disk to an employee's computer.
d. Paid25 for a dust cover for a computer printer.
e. Paid 280 to replace a cracked windshield on a used truck that was just purchased for company use. The company bought the truck knowing the windshield was cracked.
f. Paid750 for a building permit from the city for a storage shed the company is going to have built.

Answer 1

The 280 paid for windshield replacement is a revenue expenditure, while the 750 paid for the building permit is a capital expenditure. Revenue expenditures relate to repairs and maintenance, whereas capital expenditures are for long-term asset investments.

Step-by-step explanation:

For Linda Company, the expenditures described can be classified as follows:

• Revenue expenditure: The payment of 280 to replace a cracked windshield on a used truck is considered a revenue expenditure because it is a cost related to the repair and maintenance of an existing asset, ensuring the truck is in operational condition.
• Capital expenditure: The 750 paid for a building permit for a new storage shed is considered a capital expenditure because it is associated with the purchase of a long-term asset and is an upfront cost that enables the construction of a nonresidential structure.

Investment expenditure refers to spending on new capital goods, which includes nonresidential structures. Firms make investment decisions to spend money for future profits and can finance such expenditures through various means like investors, reinvesting profits, loans, or stock sales. Capital expenditures are linked with the acquisition or significant improvement of fixed assets.