Question

Costs incurred by Mills Company that relate to its property, plant, and equipment assets might be recorded in one of the five following accounts:

a.	an expense account
b.	Accumulated Depreciation
c.	Land
d.	Building
e.	Equipment

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Required:

For each of the costs identified below, indicate the type of account in which the cost should be recorded by placing the appropriate letter in the space provided.

____	25.	The legal fees associated with the acquisition of land.
____	26.	The cost of replacing the engine in a truck when the cost of the old engine is not known.
____	27.	The cost of replacing an oil furnace with an electric furnace (book value of the oil furnace is known).
____	28.	The cost of a new addition to a warehouse that will be used to store inventory.
____	29.	The cost of renovating a recently purchased ten-year-old office building.
____	30.	The materials and labor costs incurred in installing a new piece of equipment.
____	31	The costs of tuning, lubricating, and tire rotation on a fleet of delivery trucks.
____	32.	The additional costs in the construction of a building due to a small fire that occurred during the construction period.

Answer 1

Every expense made to bring an asset to its useful condition is added to the cost of that asset such as machinery cost is increased by installation charges of that machine or transport of that machine to factory.

Land	25	The legal fees associated with the acquisition of land.
An expense account	26	The cost of replacing the engine in a truck when the cost of the old engine is not known.
Equipment	27	The cost of replacing an oil furnace with an electric furnace (book value of the oil furnace is known).
Building	28	The cost of a new addition to a warehouse that will be used to store inventory.
An expense account	29	The cost of renovating a recently purchased ten-year-old office building.
Equipment	30	The materials and labor costs incurred in installing a new piece of equipment.
An expense account	31	The costs of tuning, lubricating, and tire rotation on a fleet of delivery trucks.
An expense account	32	The additional costs in the construction of a building due to a small fire that occurred during the construction period.