Question: Pet Food Enterprises has had a machine for five years

Pet Food Enterprises has had a machine for five years. At the beginning of the sixth year, the machine was not performing as well as expected. First, Pet Food performed regularly scheduled maintenance on the machine, which cost $170. Then, the company replaced some worn-out parts, which cost $575. Finally, at the beginning of the sixth year, the company completed a major overhaul of the machine that not only fixed the machine but also added new functionality and extended its useful life by four years (to a total of 10 years) with no salvage value. The overhaul cost $25,000. (Originally, the machine cost $100,000, had a salvage value of $7,000, and had an estimated useful life of six years.)
1. Which of these costs are capital expenditures? How would these amounts appear on the financial statements?
2. Which are revenue expenditures? How would these amounts appear on the financial statements?
3. Assuming Pet Food Enterprises uses the straight-line method of depreciation, how much depreciation expense will be reported on the income statements for years 6–10?



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  • CreatedSeptember 01, 2014
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