Question

CLASSIFICATION OF EXPENDITURES

Indicate the account title or correct classification of each of the following costs. Each item is independent of the others.

Choose one of the following titles or classifications for Questions 13-20

13) Periodic Maintenance on Trucks

A. Land

B. Buildings

C. Machinery and Equipment

D. Accumulated Depreciation

E. Other

14) Extensive repairs on used truck when acquired at auction

A. Land

B. Buildings

C. Machinery and Equipment

D. Accumulated Depreciation

E. Other

15) Termite inspection on building being purchased.

A. Land

B. Buildings

C. Machinery and Equipment

D. Accumulated Depreciation

E. Other

16) Delinquent taxes paid on land purchased for construction of new building

A. Land

B. Buildings

C. Machinery and Equipment

D. Accumulated Depreciation

E. Other

17) Trial runs on new machinery, including materials spoiled

A. Land

B. Buildings

C. Machinery and Equipment

D. Accumulated Depreciation

E. Other

18) Land acquired with the expectation that it will increase in value and be sold.

A. Land

B. Buildings

C. Machinery and Equipment

D. Accumulated Depreciation

E. Other

19) Paving of the parking lot

A. Land

B. Buildings

C. Machinery and Equipment

D. Accumulated Depreciation

E. Other

Answer 1

13. E

   The expenditure which increases the useful life of asset can be capitalized. Periodic maintenance of truck should be charged to revenue.

14. C

Extensive repair on truck is Usually for making asset to put to use Condition, so it has to be capitalized.

15. B

  Termite Inspection is capital cost, like legal costs.

16. E

Delinquent taxed paid cannot be capitalized, it has to charged to revenue.

17. C

The expenses till the asset is usable for production is capitalized, so trials runs and spoilage by trial run can be capitalized.

18. A

Land and building are normally capitalized even if it is intended to be sold later.

19. A

Paving of parking lot is a capital expenditure and added to land value.