Exeter Corporation purchased a piece of equipment with a price of $80,000 on March 1, 2018.The amounts below are related to the equipment purchase.Match the items below and explain why each revenue expenditure is not capitalized.
-A state agency required that a pollution-control device be installed on the equipment at a cost of $5,000.
A)This item should be included as part of the cost of the equipment.
B)This item should be considered a revenue expenditure.

Question

Quizplus · Accepted Answer

The pollution-control device is a necessary addition to make the equipment operational and compliant with regulations. Therefore, its cost enhances the value and extends the useful life of the equipment, making it a capital expenditure rather than a revenue expenditure.

Exeter Corporation Purchased a Piece of Equipment with a Price