XYZ Co. incurred the following costs related to the office building used in operating its sports supply company: Which expenditures would be classified as capital expenditures?
A) 1, 3, 6, and 7
B) 2, 4, 5, and 7
C) 1, 4, 5, and 6
D) 2, 3, 5, and 6

Question

XYZ Co. incurred the following costs related to the office building used in operating its sports supply company:  ​ Which expenditures would be classified as capital expenditures?
A) 1, 3, 6, and 7 
B) 2, 4, 5, and 7 
C) 1, 4, 5, and 6 
D) 2, 3, 5, and 6

Quizplus · Accepted Answer

Capital expenditures are expenditures that involve the acquisition, construction or significant improvement of a long-term asset. Expenditures 2, 4, 5, and 7 involve the acquisition or improvement of the building itself and are therefore considered capital expenditures. Expenditures 1, 3, and 6 are related to repairs and maintenance, which do not add substantial value or increase the life of the asset and are therefore considered expenses. Expenditure 7 is a capital expenditure because it is related to the acquisition of land, which is a long-term asset.

XYZ Co Incurred the Following Costs Related to the Office Building