Homework Answers
1. Option (a) is correct
Under double declining balance method, depreciation is calculated by the following formula:
Depreciation = 2 * 1 / N * (Cost - Accumulated depreciation)
where, n is the no. of years or useful life and accumulated depreciation is depreciation charged till date
For first year, accumulated depreciation will be zero.
So, depreciation for first year will be:
Depreciation for first year = 2 * 1 / 10 * ($60000 - 0)
Depreciation = 2 * 1 / 10 * $60000 = $12000
Now, in second year, accumulated depreciation will be $12000 (i.e. depreciation charged till date is depreciation for first year)
Depreciation for second year will be:
Depreciation = 2 * 1 / 10 * ($60000 - $12000) = 2 * 1 / 10 * $48000 = $9600
2. Option (b) is correct
Depletion expense is an expense account that is increased for a portion of the cost of a natural resource asset removed from its source.
3. Option (c) is correct
Legal fees incurred in purchasing a natural resource are added to the natural resource's cost.
4. Option (d) is correct
Accumulated depreciation depletion is disclosed in the balance sheet as a deduction from the concerned asset account.
5. Option (c) is correct
Routine maintenance and repair costs are recorded as revenue expenditure.
6. Option (b) is correct
Equipment purchased will be recorded at its purchase price and all the costs incurred till its is ready to use.
Equipment price = $25000 + $1800 + $1100 + $600 = $28500
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