Ch8. Video 17 - Revenue and Capital Expenditure example

The video tutorial explains the differences between revenue and capital expenditures using examples from Papa Company. It covers routine maintenance as a revenue expenditure and discusses capital expenditures that either improve the quality of an asset or extend its useful life. The tutorial includes detailed explanations of journal entries and depreciation recalculations for each scenario.

What is the primary characteristic of a revenue expenditure?

• It extends the useful life of an asset.

• It is added to the asset's historical value.

• It is a routine expense that does not provide long-term benefits.

• It improves the quality of an asset.

How is a capital expenditure that improves the quality of an asset recorded?

• As a routine maintenance expense.

• As a separate expense in its own account.

• By reducing the accumulated depreciation.

• By adding to the asset's historical value.

What is the effect of a capital expenditure on the depreciation calculation?

• It extends the useful life of the asset.

• It has no effect on depreciation.

• It decreases the salvage value.

• It requires a recalculation of the depreciable base.

When recalculating depreciation for a quality improvement, what is included in the new calculation?

• Only the original asset cost.

• The original asset cost minus the salvage value.

• The original asset cost plus the capital expenditure minus accumulated depreciation and salvage value.

• Only the capital expenditure amount.

How does a capital expenditure that extends the useful life of an asset affect accumulated depreciation?

• It doubles the accumulated depreciation.

• It is subtracted from accumulated depreciation.

• It is added to accumulated depreciation.

• It has no effect on accumulated depreciation.

What is the new useful life of an asset after a capital expenditure that extends its life by three years, if the original life was five years?

• Five years

• Eight years

• Three years

• Ten years

In the context of extending an asset's useful life, what is the correct journal entry for the capital expenditure?

• Debit Equipment, Credit Cash

• Debit Maintenance Expense, Credit Cash

• Debit Cash, Credit Accumulated Depreciation

• Debit Accumulated Depreciation, Credit Cash