Question 1

Exeter Corporation purchased a piece of equipment with a price of $80,000 on March 1, 2018.The amounts below are related to the equipment purchase.Match the items below and explain why each revenue expenditure is not capitalized.
-The company purchased a three-year liability insurance policy to cover possible damage caused by the new equipment at a cost of $6,000.

Accepted Answer

The liability insurance policy is considered a revenue expenditure because it is not directly related to the acquisition or improvement of the equipment. It is a regular expense incurred to protect the equipment and is not expected to increase the value or useful life of the equipment.

Question 2

Exeter Corporation purchased a piece of equipment with a price of $80,000 on March 1, 2018.The amounts below are related to the equipment purchase.Match the items below and explain why each revenue expenditure is not capitalized.
-During the installation, the equipment was damaged and repair costs of $2,000 were incurred.

Accepted Answer

The repair costs incurred during installation are considered a revenue expenditure because they were not necessary to bring the equipment to its intended use. Capitalizing these costs would overstate the value of the equipment and its useful life.

Question 3

Select the account that would be increased to show each of the following costs.
-The annual painting costs of an office building

Accepted Answer

The annual painting costs of an office building are considered a maintenance expense, so they would be recorded in an expense account.

Question 4

Identify where each of the following accounts would be reported on Coca-Cola's financial statements.
-Copyright

Accepted Answer

Copyright is an intangible asset and would be reported on the balance sheet under the Intangible Assets section.

Question 5

Select the account that would be increased to show each of the following costs.
-The costs paid to clear land

Accepted Answer

The costs paid to clear land are capitalized as part of the land account because they are necessary to get the land ready for its intended use. These costs are not expensed but added to the land's cost basis.

Question 6

Select the account that would be increased to show each of the following costs.
-The sales taxes paid related to a machine purchased

Accepted Answer

Sales taxes paid on a machine purchased should be added to the cost of the machine (Machinery and Equipment). This is because sales tax is considered as part of the cost of the asset and should not be expensed.

Question 7

Exeter Corporation purchased a piece of equipment with a price of $80,000 on March 1, 2018.The amounts below are related to the equipment purchase.Match the items below and explain why each revenue expenditure is not capitalized.
-Terms of the purchase were 2/10, net 30.Edison paid for the purchase on March 8.

Accepted Answer

BThe discount taken advantage of by paying within the discount period (2/10, net 30) reduces the purchase price of the equipment, thus it should be included in the cost of the equipment (A). Any payment made within the discount period directly affects the cost basis of the asset. On the other hand, revenue expenditures are costs that are immediately charged against revenues in the period in which they are incurred. Since the scenario does not detail any specific revenue expenditures but focuses on the purchase and payment terms of the equipment, the correct application of the discount is a capital expenditure adjustment, not a revenue expenditure.

Question 8

Identify where each of the following accounts would be reported on Coca-Cola's financial statements.
-Total amortization since inception

Accepted Answer

Amortization is the process of allocating the cost of an intangible asset over its useful life. Therefore, it would be reported on the balance sheet under intangible assets.

Question 9

For each of the following items, indicate whether each would be treated as a
-Costs incurred after putting the asset into service which keep the asset in normal operating condition

Accepted Answer

Revenue expenditure refers to the costs incurred for maintaining an asset in its normal operating condition. These are typically recurring expenses necessary for the day-to-day functioning of the asset and do not increase its life or efficiency beyond its original condition. Capital expenditure, on the other hand, refers to costs that are capitalized on the balance sheet because they are expected to provide benefits over multiple periods, such as increasing the asset's useful life, efficiency, or capacity.

Question 10

Exeter Corporation purchased a piece of equipment with a price of $80,000 on March 1, 2018.The amounts below are related to the equipment purchase.Match the items below and explain why each revenue expenditure is not capitalized.
-The company financed the equipment purchase with a bank loan.Interest of $3,000 was paid on the loan during 2018.

Accepted Answer

Interest on a loan used to finance a long-term asset is not considered part of the cost of the asset. It is considered a revenue expenditure because it is an expense that benefits the current period and does not increase the asset's future economic benefits.

Question 11

For each of the following items, indicate whether each would be treated as a
-Costs incurred prior to using the asset, such as costs to prepare the asset for use, installation costs

Accepted Answer

Costs incurred prior to using the asset, such as costs to prepare the asset for use and installation costs, are typically treated as capital expenditures because they are necessary for getting the asset ready for its intended use and are expected to provide benefits over multiple periods.

Question 12

For each of the following items, indicate whether each would be treated as a
-Costs incurred after putting the asset into service which would extend the asset's useful life

Accepted Answer

Capital expenditures are costs incurred to acquire or improve a fixed asset, such as a building or equipment, which extend the asset's useful life, increase its capacity, efficiency, or improve its quality, thereby enhancing its future economic benefits. Revenue expenditures, on the other hand, are short-term expenses necessary for the maintenance of the asset or for the day-to-day operation of the business, and do not extend the asset's useful life beyond its original estimate.

Question 13

Exeter Corporation purchased a piece of equipment with a price of $80,000 on March 1, 2018.The amounts below are related to the equipment purchase.Match the items below and explain why each revenue expenditure is not capitalized.
-It was necessary for an architect to redesign the work space to accommodate the new equipment.A fee of $6,000 was paid.

Accepted Answer

The answer of Exeter Corporation purchased a piece of equipment...

Question 14

Identify where each of the following accounts would be reported on Coca-Cola's financial statements.
-Building

Accepted Answer

Buildings are considered property, plant, and equipment, and are reported on the balance sheet under that section.

Question 15

Select the account that would be increased to show each of the following costs.
-The transportation charges related to the acquisition costs of a new piece of machinery

Accepted Answer

The transportation charges related to the acquisition costs of a new piece of machinery are directly related to the cost of the machinery and equipment, therefore increasing the Machinery and Equipment account.

Question 16

Exeter Corporation purchased a piece of equipment with a price of $80,000 on March 1, 2018.The amounts below are related to the equipment purchase.Match the items below and explain why each revenue expenditure is not capitalized.
-A state agency required that a pollution-control device be installed on the equipment at a cost of $5,000.

Accepted Answer

The pollution-control device is a necessary addition to make the equipment operational and compliant with regulations. Therefore, its cost enhances the value and extends the useful life of the equipment, making it a capital expenditure rather than a revenue expenditure.

Question 17

Select the account that would be increased to show each of the following costs.
-The interest costs incurred during the construction period of a new building built by a company for its own use

Accepted Answer

The interest costs incurred during the construction period of a new building built by a company for its own use are capitalized as part of the building's cost. This increases the value of the building asset on the company's balance sheet.

Question 18

Exeter Corporation purchased a piece of equipment with a price of $80,000 on March 1, 2018.The amounts below are related to the equipment purchase.Match the items below and explain why each revenue expenditure is not capitalized.
-$3,000 freight costs were paid to ship the equipment from the manufacturer.

Accepted Answer

Freight costs paid to ship the equipment from the manufacturer are directly associated with bringing the asset to its intended location and condition for use. Therefore, these costs are capitalized as part of the equipment's cost, not treated as a revenue expenditure.

Question 19

Select the account that would be increased to show each of the following costs.
-The costs to pave a parking lot

Accepted Answer

The cost to pave a parking lot would be considered a land improvement as it is enhancing the usability and value of the land.

Question 20

Identify where each of the following accounts would be reported on Coca-Cola's financial statements.
-Land improvements

Accepted Answer

Land improvements would be reported under the Property, Plant, and Equipment section of Coca-Cola's balance sheet. This section includes all long-term assets that are used in the production of goods or services. Land improvements are physical enhancements made to the company's land, such as constructing a building or installing a fence, and therefore they would fall under this category.

Quiz 8: Operating Assets: Property, Plant and Equipment, and Intangibles

Select the account that would be increased to show each of the following costs. -The annual painting costs of an office building

Identify where each of the following accounts would be reported on Coca-Cola's financial statements. -Copyright

Select the account that would be increased to show each of the following costs. -The costs paid to clear land

Select the account that would be increased to show each of the following costs. -The sales taxes paid related to a machine purchased

Identify where each of the following accounts would be reported on Coca-Cola's financial statements. -Total amortization since inception

For each of the following items, indicate whether each would be treated as a -Costs incurred after putting the asset into service which keep the asset in normal operating condition

For each of the following items, indicate whether each would be treated as a -Costs incurred prior to using the asset, such as costs to prepare the asset for use, installation costs

For each of the following items, indicate whether each would be treated as a -Costs incurred after putting the asset into service which would extend the asset's useful life

Identify where each of the following accounts would be reported on Coca-Cola's financial statements. -Building

Select the account that would be increased to show each of the following costs. -The transportation charges related to the acquisition costs of a new piece of machinery

Select the account that would be increased to show each of the following costs. -The interest costs incurred during the construction period of a new building built by a company for its own use

Select the account that would be increased to show each of the following costs. -The costs to pave a parking lot

Identify where each of the following accounts would be reported on Coca-Cola's financial statements. -Land improvements