Question

QS 8-9 Revenue and capital expenditures LO C3 Paid $40,000 cash to replace a motor on equipment that extends its useful life by four years. Paid $200 cash per truck for the cost of their annual tune-ups. Paid $175 for the monthly cost of replacement filters on an air-conditioning system. Completed an addition to a building for $225,000 cash. 1. Classify the above transactions as either a revenue expenditure or a capital expenditure. 2. Prepare the journal entries to record transactions a and d.

Answer 1

Transactions involving replacement of equipment motor and building addition are classified as capital expenditures, with corresponding journal entries debiting the asset accounts and crediting cash.

Step-by-step explanation:

To answer the question, first, we need to classify the transactions as either revenue expenditures or capital expenditures. Here's the classification:

Capital expenditure: Paying $40,000 cash to replace a motor on equipment that extends its useful life by four years.

Revenue expenditure: Paying $200 cash per truck for the cost of their annual tune-ups.

Revenue expenditure: Paying $175 for the monthly cost of replacement filters on an air-conditioning system.

Capital expenditure: Completing an addition to a building for $225,000 cash.

Now, let's prepare the journal entries for transactions a (motor replacement) and d (building addition), which are classified as capital expenditures:

Journal Entry for Transaction a:

Dr. Equipment 40,000
Cr. Cash 40,000
Journal Entry for Transaction d:
Dr. Building 225,000

Cr. Cash 225,000
These entries reflect the cash outflow and the corresponding increase in the company's assets due to the capital improvements.

Answer 2

1. a = Capital expenditure

b = Revenue expenditure

c = Revenue expenditure

d = Capital expenditure

2. Journal Entries

a. Debit Equipment $40,000

Credit Cash $40,000

To record a replacement on equipment that extends its useful life by four years.

d. Debit Building $225,000

Credit Cash $225,000

To record the payment for additional building completed.

Step-by-step explanation:

a) Data and Analysis:

a. Equipment $40,000 Cash $40,000

to replace a motor on equipment that extends its useful life by four years.

b. Tune-ups Expenses $200 Cash $200

c. Repairs Expenses $175 Cash $175

d. Building $225,000 Cash $225,000