Financial Accounting: An Integrated Statements Approach, 2nd Edition

Hicks Co. incurred the following costs related to trucks and vans used in operating its delivery

service:

1. Removed a two-way radio from one of the trucks and installed a new radio with a greater
   range of communication.


2. Overhauled the engine on one of the trucks that had been purchased three years ago.


3. Changed the oil and greased the joints of all the trucks and vans.


4. Installed security systems on four of the newer trucks.


5. Changed the radiator fluid on a truck that had been in service for the past four years.


6. Installed a hydraulic lift to a van.


7. Tinted the back and side windows of one of the vans to discourage theft of contents.


8. Repaired a flat tire on one of the vans.


9. Rebuilt the transmission on one of the vans that had been driven 40,000 miles. The van was
   no longer under warranty.


10. Replace the trucks’ suspension system with a new suspension system that allows for the
    delivery of heavier loads.

Classify each of the costs as a capital expenditure or a revenue expenditure. For those costs iden-

tified as capital expenditures, classify each as an expenditure improving an asset or extending

the life of an asset.

Felix Little owns and operates Big Sky Transport Co. During the past year, Felix incurred the

following costs related to his 18-wheel truck.

1. Replaced a headlight that had burned out.


2. Removed the old CB radio and replaced it with a newer model with a greater range.


3. Replaced a shock absorber that had worn out.


4. Installed a television in the sleeping compartment of the truck.


5. Replaced the old radar detector with a newer model that detects the KA frequencies now
   used by many of the state patrol radar guns. The detector is wired directly into the cab, so
   that it is partially hidden. In addition, Felix fastened the detector to the truck with a lock-
   ing device that prevents its removal.


6. Installed fog and cab lights.


7. Installed a wind deflector on top of the cab to increase fuel mileage.


8. Modified the factory-installed turbo charger with a special-order kit designed to add 50
   more horsepower to the engine performance.


9. Replaced the hydraulic brake system that had begun to fail during his latest trip through
   the Rocky Mountains.


10. Overhauled the engine.

Classify each of the costs as a capital expenditure or a revenue expenditure. For those costs iden-

tified as capital expenditures, classify each as an expenditure improving an asset or extending

the life of an asset.

Jacobs Company owned a warehouse that had an expected remaining life of 30 years and a book

value of $360,000 on January 1, 2008. The company added a sprinkler system to its warehouse

to provide fire prevention. The sprinkler system cost $34,000 to install on January 8, 2008. The

salvage value of the warehouse was $19,000. The sprinkler system did not change the salvage

value or the estimated life of the warehouse.

a. Record the cost of the new sprinkler system on January 8, 2008.

b. Record the annual depreciation expense adjusting entry for the warehouse on December

31, 2008, under the straight-line method.

Dale’s Winning Edge, Inc., purchased and installed an alarm system for its retail store on

January 1, 1999, at a cost of $50,000. The alarm system was estimated to have a 10-year life with

no residual value. On January 1, 2006, the alarm system was enhanced with wireless monitors.

The new monitors cost $40,000. In addition, the alarm system was estimated to have a remain-

ing life of 10 years, with no residual value, on January 1, 2006. Dale’s Winning Edge uses the

straight-line depreciation method.

424 Chapter 9 Fixed Assets and Intangible Assets

Exercise 9-5

Capital and revenue

expenditures

Goal 1

Exercise 9-6

Capital and revenue

expenditures

Goal 1

Exercise 9-7

Fixed asset improvement

Goal 1

Exercise 9-8

Fixed asset improvement

Goal 1

b. $5,500