Daytona Beach Company purchased a car for a salesman for $23,500 at the beginning of 2015. The car had an estimated life of 5 years, and an estimated residual value of $3,500. Daytona Beach used the straight-line depreciation method. At the beginning of 2016, Daytona Beach incurred $2,500 to replace the car's transmission. This resulted in a 2-year extension of the car's useful life, but no change in the residual value.
A. What type of cost is the $2,500? Explain.
B. Calculate the book value of the car at the end of 2015.
C. Find the depreciation expense on the car for 2016.
A. The $2,500 cost is a capital expenditure. It increases the plant asset's useful life so it must be capitalized.

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The Answer of Daytona Beach Company purchased a car for a salesman for $23,500 at the beginning of 2015. The car had an estimated life of 5 years, and an estimated residual value of $3,500. Daytona Beach used the straight-line depreciation method. At the beginning of 2016, Daytona Beach incurred $2,500 to replace the car's transmission. This resulted in a 2-year extension of the car's useful life, but no change in the residual value.
A. What type of cost is the $2,500? Explain.
B. Calculate the book value of the car at the end of 2015.
C. Find the depreciation expense on the car for 2016.
A. The $2,500 cost is a capital expenditure. It increases the plant asset's useful life so it must be capitalized.

Daytona Beach Company Purchased a Car for a Salesman for $23,500