test 3 questions

A corporation has equipment that originally cost $90,000. Its accumulated depreciation is $36,000 after the current year's adjusting entries have been recorded. A new processing technique has rendered the equipment obsolete, so it is retired. How should the company record the retirement of the equipment?

A gain or loss on disposal of a plant asset is determined by comparing the book value of the asset with the proceeds received from its sale. If it sells a plant asset for more than its book value the company recognizes a gain. If it sells it for less than the book value the company recognizes a loss. In this case, the company retires the asset without receiving any payment. Book value = Cost - Accumulated depreciation =$90,000 - 36,000 = $54,000 Since the sales price is zero and the book value is more than zero the company recognizes a loss, computed as follows: Loss = Book value of the asset sold - Sales proceeds from selling the asset Loss = $54,000 - 0 = $54,000 The company will debit the loss, and it will credit the plant asset for its cost, debit the accumulated depreciation for its balance.

Bazydlo Corporation bought equipment for $360,000 and it had an expected salvage value of $40,000. The life of the equipment was estimated to be 5 years. The depreciable cost of the equipment is

Depreciable cost = Purchase price - Salvage Value

A company owns one depreciable asset. The balance in the company's Accumulated Depreciation account represents the

amount charged to depreciation expense since the acquisition of the depreciable asset.

A permanent decline in the market value of an asset is called

impairment