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.
-The company purchased a three-year liability insurance policy to cover possible damage caused by the new equipment at a cost of $6,000.
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 liability insurance policy is considered a revenue expenditure because it is not directly related to the acquisition or improvement of the equipment. It is a regular expense incurred to protect the equipment and is not expected to increase the value or useful life of the equipment.

Exeter Corporation Purchased a Piece of Equipment with a Price