Instructions Indicate whether the items a through h are capi

Instructions

Indicate whether the items (a) through (h) are capital or revenue expenditures in the spaces provided above. C = Capital, R = Revenue.

Martinez Company purchased a machine on January 1, 2014. In addition to the purchase price paid, the following additional costs were incurred:

   ______        (a) sales tax paid on the purchase price,

   ______        (b) transportation and insurance costs while the machinery was in transit from the seller,

   ______        (c) personnel training costs for initial operation of the machinery,

   ______        (d) annual city operating license,

   ______        (e) major overhaul to extend the life of the machinery,

   ______        (f) lubrication of the machinery gearing before the machinery was placed into service,

   ______        (g) lubrication of the machinery gearing after the machinery was placed into service, and

   ______        (h) installation costs necessary to secure the machinery to the building flooring

Solution

we are given to indicate whether the items (a) through (h) are capital or revenue expenditures in the spaces provided above. C = Capital, R = Revenue.

Martinez Company purchased a machine on January 1, 2014

we know that if expenditure is incurred for purchasing or maintaining fixed assets, it will be capital expenditure

and if expnenditure is incurred for generating revenue, it will be revenue expenditure

(A)

R will be sales tax paid on the purchase price of goods.

(B)

C because it is included in cost of machinery.

(C)

C because initial training cost should be included in cost of machinery.

(D)

R because it is incurred for every year.

(E)

C because it increases the life of machinery.

(F)

C because it is included in cost of machinery.

(G)

R because it is incurred number of times in a year.

(H)

C because it is included in cost of machinery.