Intermountain Delivery Company acquired an adjacent lot to construct a new warehouse, paying $100,000 and giving a short-term note

Intermountain Delivery Company acquired an adjacent lot to construct a new warehouse, paying $100,000 and giving a short-term note for $700,000. Legal fees paid were $5,000, delinquent taxes assumed were $18,500, and fees paid to remove an old building from the land were $12,000. Materials salvaged from the demolition of the building were sold for $4,000. A contractor was paid $950,000 to construct a new warehouse. Determine the cost of the land to be reported on the balance sheet.


Answer:











Initial cost of land ($100,000 + $700,000) ...................................... $800,000
Plus: Legal fees ........................................................................... $ 5,000
Delinquent taxes ............................................................... 18,500
Demolition of building ..................................................................... 12,000 35,500
$835,500
Less salvage of materials ............................................................... 4,000
Cost of land....................................................................................... $831,500




Classify each of the costs as a capital expenditure or a revenue expenditure.

Jackie Fox owns and operates Platinum Transport Co. During the past year, Jackie incurred the following costs related to an 18-wheel truck:

1. Changed engine oil.
2. Installed a television in the sleeping compartment of the truck.
3. Installed a wind deflector on top of the cab to increase fuel mileage.
4. Modified the factory-installed turbo charger with a special-order kit designed to add 50 more horsepower to the engine performance.
5. Replaced a headlight that had burned out.
6. Replaced a shock absorber that had worn out.
7. Replaced fog and cab light bulbs.
8. Replaced the hydraulic brake system that had begun to fail during his latest trip through the Rocky Mountains.
9. Removed the old CB radio and replaced it with a newer model with a greater range.
10. Replaced the old radar detector with a newer model that is fastened to the truck with a locking device that prevents its removal.


Classify each of the costs as a capital expenditure or a revenue expenditure.


Answer:
Capital expenditures: 2, 3, 4, 8, 9, 10
Revenue expenditures: 1, 5, 6, 7