This exercise will help you identify which expenditures should be capitalized (debited to a balance sheet account) and which should be expensed (charged to an income statement account).


Assume all amounts are material (significant). For each of the following independent items, indicate by use of the appropriate letter if it should be:

C for Capitalized or E for Expensed

1. Invoice price of drill press.

2. Sales tax on computer.

3. Costs of permanent partitions constructed in office building.

4. Installation charges for new conveyer system.

5. Costs of trees and shrubs planted in front of office building.

6. Cost of surveying new land site to determine property boundaries.

7. Costs of major overhaul of delivery truck which extends the life of the truck.

8. Costs of constructing new counters for show room.

9. Costs of powders, soaps, and wax for office floors.

10. Cost of janitorial services for office and show room.

11. Costs of carpets in a new office building.

12. Costs of annual termite inspection of warehouse.

13. Insurance charged for new equipment while in transit.

14. Property taxes on land used for parking lot.

15. Cost of a fan installed to help cool an old factory machine.

16. Cost of exterminator”s services.

17. Costs of major redecorating of executive”s offices.

18. Cost of fertilizers for shrubs and trees.

19. Cost of labor services for self-constructed machine.

20. Costs of materials used and labor services expended during trial runs of new machine.