Question
Sellers Construction Company purchased a compressor for $105,300 cash. It had an estimated useful life of four years and a $10,800 salvage value. At the
Sellers Construction Company purchased a compressor for $105,300 cash. It had an estimated useful life of four years and a $10,800 salvage value. At the beginning of the third year of use, the company spent an additional $9,260 related to the equipment. The companys 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. | ||||||
| 10,070 | + | 58,050 | = | 25,600 | + | 42,520 | NA | NA | = | NA | NA | |
Required Record the $9,260 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, "IA" for investing activity and "NA" for no affect. Enter any decreases to account balances with a minus sign.) a. The expenditure was for routine maintenance. b. The expenditure extended the compressors life. c. The expenditure improved the compressors operating capacity.
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