Question

preciate king a lump-sum purchase of assets E10-18 Making a lu Maplewood Properties be ties bought three lots in a subdivision for a lump sum price. An valued the lots as follows: independent appraiser valued the lot Learning Objective 1 Lot CHAPTER 16 Appraised Value $ 144,000 N 96,000 240,000 w Maplewood paid $355,000 in cash. Recor lot's cost in a separate Land acco computed percentages throughout. od paid $355,000 in cash. Record the purchase in the journal, identifying each sr in a separate Land account. Round decimals to two places, and use the E10-19 Distingu 19 Distinguishing capital expenditures from revenue expenditures Consider the following expenditures: Learning Objective 1 a. Purchase price. b. Ordinary recurring repairs to keep the machinery in good working order. c. Lubrication before machinery is placed in service. d. Periodic lubrication after machinery is placed in service. e. Major overhaul to extend useful life by three years. f. Sales tax paid on the purchase price. g. Transportation and insurance while machinery is in transit from seller to buyer. h. Installation 1. Training of personnel for initial operation of the machinery, assify each of the expenditures as a capital expenditure or a revenue expenditure related to machinery.

Answer 1

18)

LOT	Appraisal value	% of total	Calcuation	Proportionate purchase price
1	$        1,44,000	30%	355000*30%	$        1,06,500
2	$            96,000	20%	355000*20%	$            71,000
3	$        2,40,000	50%	355000*50%	$        1,77,500
Total	$        4,80,000			$        3,55,000

Land Lot 1 (30% of 355000)	$        1,06,500
Cash		$        1,06,500
(Recording Lot 1)
Land Lot 2 (20% of 355000)	$        1,06,500
Cash		$        1,06,500
(Recording Lot 2)
Land Lot 3 (50% of 355000)	$        1,06,500
Cash		$        1,06,500
(Recording Lot 3)

19)

Capital expenditure

Purchase price

Major overhaul to extend useful life by 3 years

Sales tax paid on purchase price

Transportation and insurance while machiner in transit from seller to buyer

Installation

Lubrication before machinery placed in service

Revenue expenditure

Ordinary recurring repairs to keep machinery in good working order

Training of personnel for initial operation of machinery

With explanations

Capital expenditure

Purchase price- All cost necessary to bring the asset to the present location and working condition

Major overhaul to extend useful life by 3 years - This increases service life. Hence capitalize

Sales tax paid on purchase price - All cost necessary to bring the asset to the present location and working condition

Transportation and insurnce while machiner in transit from seller to buyer -All cost necessary to bring the asset to present location and working condition

Installation- All cost necessary to bring the asset to present location and working condition

Lubrication before machinery placed in service - This is initial lubircation to run the machienry. Hence capital expenditure

Revenue expenditure

Ordinary recurring repairs to keep machinery in good working order - This is routine expense to keep machinery operational

Training of personnel for initial operation of machinery - This costs does not relate to bring the machinery operational.