Question

Identify the following expenditures as capital expenditures or revenue expenditures:

a. Immediately after acquiring a new delivery truck, paid $195 to have the name of the store and other advertising material painted on the vehicle.
b. Painted delivery truck at a cost of $450 after two years of use.
c. Purchased new battery at a cost of $40 for two-year-old delivery truck.
d. Installed an escalator at a cost of $17,500 in a three-story building that had been used for some years without elevators or escalators.
e. Purchased a pencil sharpener at a cost of $15.00.
f. Original life of the delivery truck had been estimated at four years, and straight-line depreciation of 25 percent yearly had been recognized. After three years' use, however, it was decided to recondition the truck thoroughly, including adding a new engine.

Answer 1

The expenditures can be classified as capital expenditures or revenue expenditures based on their nature and impact on the assets or operations of the business.

Step-by-step explanation:

To identify whether the expenditures are capital expenditures or revenue expenditures, we need to understand the definitions and characteristics of each.

Capital Expenditures:

Capital expenditures are long-term investments that are expected to provide benefits over many years. They are typically associated with acquiring or improving long-term assets, such as buildings, equipment, or vehicles. Capital expenditures are recorded on the balance sheet and depreciated over their useful life.

Revenue Expenditures:

Revenue expenditures are short-term expenses incurred in the normal course of business operations to maintain or support the current level of productivity. They are typically associated with day-to-day operations and include expenses like repairs, maintenance, and advertising. Revenue expenditures are recorded on the income statement and deducted as expenses in the current period.

1. a. Immediately after acquiring a new delivery truck, paid $195 to have the name of the store and other advertising material painted on the vehicle. - This expense is a revenue expenditure because it is a short-term expense related to advertising and promoting the business.
2. b. Painted delivery truck at a cost of $450 after two years of use. - This expense can be considered both a capital expenditure and a revenue expenditure. If the painting is considered a routine maintenance and does not significantly improve the value or extend the useful life of the truck, it can be treated as a revenue expenditure. However, if the painting is considered a major overhaul or enhancement that extends the useful life of the truck, it can be treated as a capital expenditure.
3. c. Purchased new battery at a cost of $40 for two-year-old delivery truck. - This expense is a revenue expenditure because it is a short-term expense incurred to maintain the current level of productivity.
4. d. Installed an escalator at a cost of $17,500 in a three-story building that had been used for some years without elevators or escalators. - This expense is a capital expenditure because it is a long-term investment in improving the building by adding an escalator.
5. e. Purchased a pencil sharpener at a cost of $15.00. - This expense is a revenue expenditure because it is a short-term expense incurred to support the current level of productivity.
6. f. Original life of the delivery truck had been estimated at four years, and straight-line depreciation of 25 percent yearly had been recognized. After three years' use, however, it was decided to recondition the truck thoroughly, including adding a new engine. - This expense is a capital expenditure because it involves major repairs and improvements to the truck, which extend its useful life and improve its value.