Question

John Corporation incurred the following expenditures. Which of these purchases should be capitalized as a long-term...

John Corporation incurred the following expenditures. Which of these purchases should be capitalized as a long-term asset? (Answer either "Yes" or "No")

$8,000 to procure office supplies for the corporate headquarters.

$325 for maintenance to a company-owned vehicle.

$37,000 for the purchase of an additional company vehicle.

$1,800 to paint the offices within a company facility.

$75,000 for the use of a consultant.

$390,000 for the purchase of annual insurance coverage for the company’s operations   

$64,000 for the purchase of equipment to be used in the company’s manufacturing facility.    

$750,000 for the  renovation and refurbishment of an existing company facility, thereby extending the life of the facility for an additional 8 years

Homework Answers

Answer #1

1) 8,000 to procure office supplies for the corporate headquarter
NO , it should not be capitalized, as office supplies includes paper, pens, toner cartiges etc, it is a non caplitaized item.

2) $325 for maintenance to a company-owned vehicle
  NO , it should not be capitalized, maintainence to vechile is operating expense, should not transfer to vechile, it does not increase the value of asset

3)$37,000 for the purchase of an additional company vehicle
Yes , to be capitalized
4) 1,800 to paint the offices within a company facility.
NO , it should not be capitalized, it is a repair and maintainence expense.

5)75,000 for the use of a consultant
Not to be capitalized

6)390,000 for the purchase of annual insurance coverage for the company’s operations
Not to be capitalized as long term asset. it depands upon use of policy.
7) $64,000 for the purchase of equipment to be used in the company’s manufacturing facility.
Yes to be capitalized, if it increse capacity and life of manufacturing facility.

8)$750,000 for the  renovation and refurbishment of an existing company facility, thereby extending the life of the facility for an additional 8 years .
Yes to be capitalized as an long term asset, and should be depriciated, as it increase the life of facility.

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