13) On January 1 2010, Max, Inc. paid $80,000 for a truck with an estimated useful life of 10 years and a $20,000 salvage value. During 2013, Max, Inc.’s truck was not running very well.
Part A:
Put an X in the appropriate box to show whether each item is an expense, a capital expenditure, or neither.
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During 2013, Max, Inc.:
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Expense
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Capital expenditure
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Neither
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1
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paid $150 to have the oil changed in the truck.
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2
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paid $500 to overhaul the transmission.
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3.
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paid $20,000 for a rebuilt engine for the truck, which extends its useful life to the end of 2017, with no change in salvage value.
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Part B:
1. Straight-line depreciation expense for 2012 is $_____________________.
2. The book value of the machine at December 31, 2012 is $___________________.
3. Straight-line depreciation expense for 2013, after the major overhaul, is $__________.
14) Identify the appropriate accounting treatment for each of the payments listed below using the following code:
C = Capitalize
E = Expense
N = Neither of the above
______ 1. A payment for service that maintains the working condition of a truck
______ 2. A payment for service that adds 3 years of useful life to a machine
______ 3. A payment that reduces a liability
______ 4. A payment of cash to the owners of the business
______ 5. A payment to buy an asset with a 5-year estimated useful life
______ 6. A payment to install the asset with a 5-year estimated useful life
______ 7. A payment to increase the speed of a cutting machine used in production
______ 8. A payment to decrease the cost of operating a metal molding machine
______ 9. A monthly payment to tune-up and lubricate factory equipment
______ 10. A payment to change the rubber belts on the factory conveyor system