Question
Exercise 6-17 Effect of revenue expenditures versus capital expenditures on financial statements [LO 6] On January 1, 2012, Valley Power Company overhauled four turbine engines
Exercise 6-17 Effect of revenue expenditures versus capital expenditures on financial statements [LO 6]
On January 1, 2012, Valley Power Company overhauled four turbine engines that generate power for customers. The overhaul resulted in a slight increase in the capacity of the engines to produce power. Such overhauls occur regularly at two-year intervals and have been treated as maintenance expense in the past. Management is considering whether to capitalize this years $23,890 cash cost in the engine asset account or to expense it as a maintenance expense. Assume that the engines have a remaining useful life of two years and no expected salvage value. Assume straight-line depreciation. |
Required: |
(a) | Determine the amount of additional depreciation expense Valley would recognize in 2012 and 2013 if the cost were capitalized in the Engine account. (Omit the "$" sign in your response.) |
$ = $ additional depreciation expense for 2012 and 2013. |
(b) | Determine the amount of expense Valley would recognize in 2012 and 2013 if the cost were recognized as maintenance expense. (Leave no cells blank - be certain to enter "0" wherever required. Input all amounts as positive values. Omit the "$" sign in your response.) |
$ of expense would be recognized in 2012 and $ in 2013. |
(c) | Determine the effect of the overhaul on cash flow from operating activities for 2012 and 2013 if the cost were capitalized and expensed through depreciation charges. (Leave no cells blank - be certain to enter "0" wherever required. Input all amounts as positive values. Omit the "$" sign in your response.) |
$ cash outflow from operating activities in 2012, $ cash outflow from operating activities in 2013 . |
(d) | Determine the effect of the overhaul on cash flow from operating activities for 2012 and 2013 if the cost were recognized as maintenance expense. (Leave no cells blank - be certain to enter "0" wherever required. Input all amounts as positive values. Omit the "$" sign in your response.) |
$ cash outflow from operating activities in 2012 and $ in 2013. |
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