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Answer :
1. After the repair, the book value that should appear on the balance sheet for the tow truck is $5,000, and for the building, it is $81,900.
A repair expense is classified as a revenue expenditure because it maintains or restores the existing functionality and condition of an asset. It does not increase the useful life or improve the asset's productivity. Therefore, the repair cost of $910 for the tow truck is expensed immediately and does not affect the book value. The book value for the tow truck remains the same at $5,000.
On the other hand, the roof replacement cost of $7,000 for the building is considered a capital expenditure. It extends the useful life of the building by five years, indicating an improvement that enhances the asset's productivity and increases its future economic benefits. The cost of the new roof is added to the building's account and capitalized.
Before the roof replacement, the Building account had a book value of $86,200, and the related Accumulated Depreciation account had a balance of $37,900.
The net book value of the building prior to the roof replacement was $86,200 - $37,900 = $48,300. Since the new roof extended the building's life and improved its condition, the $7,000 cost is added to the Building account, resulting in an updated book value of $48,300 + $7,000 = $55,300.
Therefore, after the repair, the book value on the balance sheet should be $5,000 for the tow truck and $81,900 for the building.
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