Capital versus Revenue Expenditures On January 1, 2015, Jose Company purchased a building for $200,000 and a delivery truck for $20,000. The following expenditures have been incurred during 2017: The building was painted at a cost of $5,000. To prevent leaking, new windows were installed in the building at a cost of $10,000. To improve production, a new conveyor system was installed at a cost of $40,000. The delivery truck was repainted with a new company logo at a cost of $1,000. To allow better handling of large loads, a hydraulic lift system was installed on the truck at a cost of $5,000. The truck's engine was overhauled at a cost of $4,000. Required: 1. Determine which of those costs should be capitalized. Assume that all costs were incurred on January 1, 2017. Select "Yes" if the cost should be capitalized; otherwise select "No". The building was painted at a cost of $5,000. No To prevent leaking, new windows were installed in the building at a cost of $10,000. No To improve production, a new conveyor system was installed at a cost of $40,000. Yes No The delivery truck was repainted with a new company logo at a cost of $1,000. To allow better handling of large loads, a hydraulic lift system was installed on the truck at a cost of $5,000. The truck's engine was overhauled at a cost of $4,000. Yes No Identify and analyze the total effect of the capitalized costs on January 1, 2017 related to the building. Activity Financing Building Increase, Cash Decrease Accounts Statement(s) Balance Sheet How does this entry affect the accounting equation? If a financial statement item is not affected, select "No Entry" and leave the amount box blank. If the effect on a financial statement item is negative, i.e, a decrease, be sure to enter the answer with a minus sign. Balance Sheet Income Statement Stockholders' Net Assets Liabilities Equity Revenues Expenses Income Building Delivery Truck X Identify and analyze the total effect of the capitalized costs on January 1, 2017 related to the delivery truck. Activity Operating X Accounts Statement(s) Balance Sheet and Income Statement X Feedback Check My Work 1. Determine activity. 1a. Financing activities are transactions (other than payment of interest) involving borrowing from creditors or repaying creditors. This also includes transactions with the company's owners. Businesses borrow money or raise money from selling of their stock. 1b. Investing activities are obtaining money by building up operations or purchasing investment products such as stocks, bonds and annuities. 1c. Operating activities are the sale of products and/or services, and the costs incurred to operate a business. 2. Determine financial statement accounts affected, balance sheet or income statement. Determine accounts and amount of increases/decreases. 3. Balance Sheet accounts: Assets = Liabilities + Stockholders' Equity. Income Statement accounts: Revenues - Expenses = Net Income. (Equations must stay in balance) How does this entry affect the accounting equation? If a financial statement item not affected, select "No Entry" and leave the amount box blank. If the effect on a financial statement item is negative, i.e, a decrease, be sure to enter the answer with a minus sign. Balance Sheet Income Statement Net Stockholders' Equity Assets Liabilities Revenues Expenses Income Feedback Check My Work Incorrect 2. Determine the amount of depreciation for the year 2017. The company uses the straight-line method and depreciates the building over 25 years and the truck over six years. Assume zero residual value for all assets. Round your intermediate calculations and answers to the nearest whole dollar. Asset 2017 Depreciation 9,739 Building ta Truck $ 4,583 Feedback Check My Work Calculate depreciation for the appropriate assets. Set up T account for accumulated depreciation. Determine book value at end of 2017. Record depreciation by increasing the expense account. Activity Operating Accounts Statement(s) Balance Sheet and Income Statement Feedback Check My Work Calculate depreciation the appropriate assets. Set up T account for accumulated depreciation. Determine book value at end of 2017. Record depreciation by increasing the expense account. How does this entry affect the accounting equation? If a financial statement item is not affected, select "No Entry" and leave the amount box blank. If the effect on a financial statement item is negative, i.e, a decrease, be sure to enter the answer with a minus sign. Remember: if a contra account is increased, will have the effect of decreasing the corresponding financial statement item. Balance Sheet Income Statement Stockholders' Net Assets Liabilities Equity Revenues Expenses Income Building X Feedback Check My Work Partially correct