8.4 Account for repairs to plant assets
1) Expenditures incurred, such as changing the oil and filter on a delivery truck, would be considered ordinary repairs.
2) Replacing an engine on a delivery truck would be considered a betterment.
3) Ordinary repairs are also called revenue expenditures because the expense is matched against the revenues for the period.
4) Lubricating a machine on a regular basis would be considered a(n):
A) betterment.
B) capital expenditure.
C) ordinary repair.
D) capital expense.
E) extraordinary repair.
5) Replacing the engine of a 3-year-old vehicle would be an example of a(n):
A) extraordinary repair.
B) betterment.
C) ordinary repair.
D) capital expense.
E) revenue expenditure.
6) A company replaced an engine on a vehicle and debited the amount to repairs expense, rather than debiting the "vehicle" account. Which of the following would occur because of this error?
A) Repairs Expense would be understated.
B) Net Income would be overstated.
C) The asset "vehicle" would be overstated.
D) The asset "vehicle" would be understated.
E) Shareholders' Equity would be overstated.
7) What is a repair that extends the useful life of an asset?
8) A vehicle was purchased for $33,000 on January 1, 2009 with an estimated residual value of $4,000 and 5 years of useful life. The company uses the straight-line depreciation method. On July 1, 2011, the engine was overhauled with a cost of $4,000. As a result of the overhaul, it is estimated its residual value would increase by $500 and its useful life would increase by 1.5 years. What is the new depreciation?
9) Would adding 30 rooms to an existing hotel be considered a betterment or an extraordinary repair?
10) A company replaced tires on a vehicle and debited the amount to "vehicle" instead of repairs expense. What is the effect on the income statement as a result of this error?