Financial Act Chpt 9 Notes

Interest paid during the construction period on money

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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? 53 Land: $ 100,000 Building: $ 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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