Question

Question: 1. Classify the following as either a revenue expenditure (RE) or a capital expenditure (CE).

1. Paid \(40,000 cash to replace a compressor on a refrigeration system that extends its useful life by four years.

2. Paid \)200 cash per truck for the cost of their annual tune-ups.

3. Paid \(175 for the monthly cost of replacement filters on an air-conditioning system.

4. Completed an addition to an office building for \)225,000 cash.

2. Prepare the journal entries to record transactions a and d of part 1

Short answer

1. Revenue expenditure: - part (b) and part (c)

Capital expenditure: - part (a) and part (d)

2. (a) Refrigerator maintenance is debited by $40,000 and Cash is credited by $40,000.

(d) Building is debited by $225,000 and Cash is credited by $225,000.

Step-by-step solution

Revenue expenditure

Revenue expenditure is also known as operational expenditure. It is an ongoing cost or the amount spent to run the daily operations of the business.

Capital expenditure

Capital expenditure is the money organization spends to buy, maintain or improve its fixed assets. Such as building, land, equipment, etc.

Solution

ColorCode: Pink (#FA3273)

	Revenue expenditure/ capital expenditure
Paid $40,000 cash to replace a compressor on a refrigeration system that extends its useful life by four years	Capital expenditure
Paid $200 cash per truck for the cost of their annual tune-ups.	Revenue expenditure
Paid $175 for the monthly cost of replacement filters on an air-conditioning system	Revenue expenditure
Completed an addition to an office building for $225,000 cash	Capital expenditure

 Step 4: Journal entries for the transaction a and d in part 1

Refrigerator maintenance	$40,000
Cash		$40,000
Record maintenance of refrigerator

a)

d)

Building	$225,000
Cash		$225,000
Record addition on office building