account for capital and revenue expenditures expenses and calculate depreciation exp 538657

Account for capital and revenue expenditures (expenses) and calculate depreciation expense (LO2,4)

Shiny & New Auto Mechanic Shop has had a piece of equipment for five years. At the beginning of the sixth year, it wasn’t performing as well as it should have been. First, Shiny & New had the equipment serviced, which cost $175. Then, the company tried replacing some worn-out parts, which cost $480. Finally, at the beginning of the sixth year, it completed a major overhaul of the equipment that not only fixed the machine, but also added new functionality to it and extended the useful life by four years (to a total of ten years with five remaining) with no salvage value. The overhaul cost $20,000. (Originally, the machine cost $65,000, had a salvage value of $5,000, and an estimated useful life of six years.)

a. Which of these costs are capital expenditures? How would these amounts appear on the financial statements?

b. Which are revenue expenditures? How would these amounts appear on the financial statements?

c. Assuming Shiny & New uses the straight-line method of depreciation how much depreciation expense will be reported on the income statements for years six through ten?