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Unformatted text preview: e, for a cost of $500. Interest paid
during the construction period (on money borrowed to fund the construction) was $1,000. What should
be capitalized on the balance sheet?
$ 516,000 (S500,000+$5,000+$10,000+$1,000)
Revenue Expenditures vs. Capital Expenditures:
• Revenue Expenditures: Include all expenses incurred to help maintain productive
assets. Recurring in nature, normally very small charges, etc. Treated as period costs
and expensed on the income statement as incurred.
Capital Expenditures: Expenditures that help increases the asset's productive life.
Normally incur infrequently, involve large amounts of money, and extend the asset's
usefulness. (Additions, major overhauls, etc.) These are capitalized (recorded as an
asset on the balance sheet) and depreciated over its estimated useful life.
Fixed Asset Turnover Ratio: Measures how effectively a company is using its fixed assets to generate
revenues. Fixed Asset Turnover Ratio = Net Sales/Average Net fixed assets
Depreciation: An adjusting entry required (for matching principle) to allocate the cost of buildings and
equipment over their estimated useful life by using a s...
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