Question

Sub Sandwiches of America made the following expenditures related to its restaurant.

1. Replaced the heating equipment at a cost of $250,000.
2. Covered the patio area with a clear plastic dome and enclosed it with glass for use during the winter months. The total cost of the project was $750,000.
3. Performed annual building maintenance at a cost of $24,000.
4. Paid for annual insurance for the facility at $8,800.
5. Built a new sign above the restaurant, putting the company name in bright neon lights, for 9,900.
6. Paved a gravel parking lot at a cost of $65,000.

Required:
Sub Sandwiches of America credits cash for each of these expenditures. Select the account it debits for each.

Answer 1

Sub Sandwiches of America debits Equipment, Building Improvement/Leasehold Improvements, Maintenance Expense, Insurance Expense, Signage/Leasehold Improvements, and Land Improvements for their respective expenditures while crediting cash.

Step-by-step explanation:

For Sub Sandwiches of America, various expenditures are made, each requiring a debit to a corresponding account while crediting cash. Here's what the company would debit for each expenditure:

• Equipment account would be debited for replacing the heating equipment ($250,000).
• Building Improvement or Leasehold Improvements account would be debited for covering the patio with a plastic dome and glass enclosure ($750,000).
• Maintenance Expense account would be debited for the annual building maintenance ($24,000).
• Insurance Expense account would be debited for the annual insurance cost ($8,800).
• Signage or Leasehold Improvements account would be debited for the new sign with neon lights ($9,900).
• Land Improvements account would be debited for paving the gravel parking lot ($65,000).

These debits reflect the nature of each expenditure, whether it's a capital improvement that adds value to the property (capitalized) or a recurring expense (expensed).

Answer 2

1. Heating Equipment

2. Premises

3. Maintenance Expense

4. Prepaid Insurance

5. Intangible Asset ; Logo

6. Premises

Step-by-step explanation:

1. Replacement of heating equipment is substantial hence it is capitalized to the Heating Equipment Account.

2. The project is capitalized to the Premises Account as it form part of premises.

3. Annual Building maintenance is a revenue expenditure not capitalized.

4. An Asset Insurance Prepaid for future economic benefits to be realized is recognized.

5. The new sign would result in inflow of economic benefit and is non-tangible hence Intangible Asset is recognized.

6. Work done is capitalized in the Premises Account