Question Details

A motor in one of North Company- trucks was overhauled 



Ex. 1—Capitalizing vs. Expensing.
Consider each of the items below. Place the proper letter in the blank space provided to indicate the nature of the account or accounts to be debited when recording each transaction using the preferred accounting treatment. Prepayments should be recorded in balance sheet accounts. Disregard income tax considerations unless instructed otherwise.

	a.	asset(s) only
	b.	accumulated depreciation only
	c.	expense only
	d.	asset(s) and expense
	e.	some other account or combination of accounts

		1.	A motor in one of North Company- trucks was overhauled at a cost of $600. It is expected that this will extend the life of the truck for two years.

		2.	Machinery which had originally cost $130,000 was rearranged at a cost of $450, including installation, in order to improve production.

		3.	Orlando Company recently purchased land and two buildings for a total cost of $35,000, and entered the purchase on the books. The $1,200 cost of razing the smaller building, which has an appraisal value of $6,200, is recorded.

		4.	Jantzen Company traded its old machine with a net book value of $3,000 plus cash of $7,000 for a new one which had a fair value of $9,000.

		5.	Jim Parra and Mary Lawson, maintenance repair workers, spent five days in unloading and setting up a new $6,000 precision machine in the plant. The wages earned in this five-day period, $480, are recorded.

		6.	On June 1, the Milton Hotel installed a sprinkler system throughout the building at a cost of $13,000. As a result the insurance rate was decreased by 40%.

		7.	An improvement, which extended the life but not the usefulness of the asset, cost $6,000.

		8.	The attic of the administration building was finished at a cost of $3,000 to provide an additional office.

		9.	In March, the Lyon Theatre bought projection equipment on the installment basis. The contract price was $23,610, payable $5,610 down, and $2,250 a month for the next eight months. The cash price for this equipment was $22,530.

		10.	Lambert Company recorded the first year- interest on 6% $100,000 ten-year bonds sold a year ago at 94. The bonds were sold in order to finance the construction of a hydroelectric plant. Six months after the sale of the bonds, the construction of the hydroelectric plant was completed and operations were begun. (Only cash interest, and not discount amortization, is to be considered.)





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