solution

Effect of revenue expenditures versus capital expenditures on financial statements

Sequoia Construction Company purchased a forklift for $110,000 cash. It had an estimated useful life of four years and a $10,000 salvage value. At the beginning of the third year of use, the company spent an additional $8,000 that was related to the forklift. The company’s financial condition just prior to this expenditure is shown in the following statements model.

Required

Record the $8,000 expenditure in the statements model under each of the following independent assumptions:

a. The expenditure was for routine maintenance.

b. The expenditure extended the forklift’s life.

c. The expenditure improved the forklift’s operating capacity.

 
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