Question

Sellers Construction Company purchased a compressor for $115,200 cash. It had an estimated useful life of four years and a $8,800 salvage value. At the beginning of the third year of use, the company spent an additional $7,640 related to the equipment. The company’s financial condition just prior to this expenditure is shown in the following statements model:
 

Assets

=

Equity

Rev.

−

Exp.

=

Net Inc.

Cash Flow

Cash

+

Book Value of Compressor

=

Com. Stk.

+

Ret. Earn.

11,360

+

62,000

=

23,800

+

49,560

NA

−

NA

=

NA

NA

 
Required
Record the $7,640 expenditure in the statements model under each of the following independent assumptions: (In the Cash Flow column, use the initials "OA" for operating activities, "FA" for financing activities, and "IA" for investing activity. Enter any decreases to account balances with a minus sign. Not all cells in the "Cash Flow" column may require an input - leave cells blank if there is no corresponding input needed.)
 
a. The expenditure was for routine maintenance.
b. The expenditure extended the compressor’s life.
c. The expenditure improved the compressor’s operating capacity