Accounting Chapter 7

The original cost of a piece of equipment was $100,000. The equipment was depreciated using the straight-line method with annual depreciation of $20,000. After two years, the fair value of the equipment is $82,000. How much is the book value of the equipment at the end of the second year?

60,000 (100,000 - 40,000)

Bryer Co. purchases all of the assets and liabilities of Stellar Co. for $1,500,000. The fair value of Stellar's assets is $2,000,000, and its liabilities have a fair value of $1,200,000. The book value of Stellar's assets and liabilities are not known. For what amount would Bryer record goodwill associated with the purchase?

700,000

Whole Grain Bakery purchases an industrial bread machine for $26,500. In addition to the purchase price, the company makes the following expenditures: freight, $1,650; installation, $3,300; testing, $1,150; and property tax on the machine for the first year, $530.

Add up all numbers besides property tax

A company purchased land and building from a seller for $900,000. A separate appraisal reveals the fair value of the land to be $200,000 and the fair value of the building to be $800,000. For what amount would the company record land at the time of purchase?

180,000

Equipment was purchased for $50,000. At that time, the equipment was expected to be used eight years and have a residual value of $10,000. The company uses straight-line depreciation. At the beginning of the third year, the company changed its estimated useful life to a total of six years (four years remaining) and the residual value to $8,000. What is depreciation expense in the third year?

8,000

Equipment originally costing $100,000 has accumulated depreciation of $65,000. If it is sold for $40,000, the company should record

A Gain of 5,000

Which of the following expenditures should be capitalized?

An improvement to a tangible asset.

A company purchased a tractor at a cost of $38,000 and sold it three years later for $19,300. The company recorded depreciation using the straight-line method, a five-year service life, and a $2,500 residual value. Tractors are included in the Equipment account.

Cash- 19,300 Accumulated Depreciation- 21,300 Equipment- 38,000 Gain- 2,600

El Tapitio purchased restaurant furniture on September 1, 2021, for $40,000. Residual value at the end of an estimated 10-year service life is expected to be $5,500. Calculate depreciation expense for 2021 and 2022, using the straight-line method, and assuming a December 31 year-end

Year 2021: ($40,000 - $5,500) / 10 = $3,450 × 4/12 = $1,15010 Year 2022: ($40,000 - $5,500) / 10= $3,450

Depreciation in accounting is the

allocation of an asset's cost to an expense over time

Accumulated depreciation is

contra asset account

depreciable cost

the cost minus its estimated residual value