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Financial & Managerial Accounting
Found in: Page 387
Financial & Managerial Accounting

Financial & Managerial Accounting

Book edition 7th
Author(s) John J Wild, Ken W. Shaw, Barbara Chiappetta
Pages 1096 pages
ISBN 9781259726705

Short Answer

Question: 1. Classify the following as either a revenue expenditure (RE) or a capital expenditure (CE).

  1. Paid $40,000 cash to replace a compressor on a refrigeration system that extends its useful life by four years.

  2. Paid $200 cash per truck for the cost of their annual tune-ups.

  3. Paid $175 for the monthly cost of replacement filters on an air-conditioning system.

  4. Completed an addition to an office building for $225,000 cash.

2. Prepare the journal entries to record transactions a and d of part 1

  1. Revenue expenditure: - part (b) and part (c)

Capital expenditure: - part (a) and part (d)

2. (a) Refrigerator maintenance is debited by $40,000 and Cash is credited by $40,000.

(d) Building is debited by $225,000 and Cash is credited by $225,000.

See the step by step solution

Step by Step Solution

Step 1: Revenue expenditure

Revenue expenditure is also known as operational expenditure. It is an ongoing cost or the amount spent to run the daily operations of the business.

Step 2: Capital expenditure

Capital expenditure is the money organization spends to buy, maintain or improve its fixed assets. Such as building, land, equipment, etc.

Step 3: Solution

ColorCode: Pink (#FA3273)

Revenue expenditure/ capital expenditure

Paid $40,000 cash to replace a compressor on a refrigeration system that extends its useful life by four years

Capital expenditure

Paid $200 cash per truck for the cost of their annual tune-ups.

Revenue expenditure

Paid $175 for the monthly cost of replacement filters on an air-conditioning system

Revenue expenditure

Completed an addition to an office building for $225,000 cash

Capital expenditure

 Step 4: Journal entries for the transaction a and d in part 1

Refrigerator maintenance

$40,000

Cash

$40,000

Record maintenance of refrigerator

a)

d)

Building

$225,000

Cash

$225,000

Record addition on office building

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