Question

Question 10 (1 point) Remsen, Inc. purchased equipment that cost $48,000. The equipment had a useful life of 5 years and a $5,000 salvage value. Remsen used the double-declining- balance method to depreciate its assets. Which of the following choices accurately reflects how the recognition of the first year's depreciation would affect the company's financial statements? Assets 1 Liab. + Equity Rev. Exp. . Net Inc. Cash Flow A) (10,800) NA + (10,800) NA - 10.800 (10,800) (10.800) OA B) + (5.000) - NA (5,000) NA 5.000 (5.000) NA C) (19.200) NA + (19.200) NA 19.200 - (19.200) (19.200) OA D) (19.200) 1 NA + (19.200) NA - 19.200 (19.200) NA 1) Choice A 2) Choice B 3) Choice C 4) Choice D

Answer 1

Answer :

Option - 4, Choice - D

Explanation :

Cost of equipment = $48,000

Useful life = 5 years

Salvage value = $5,000

Double Declining Depreciation rate = 100% / Life of asset x 2

= 100% / 5 years x 2

= 40%

Depreciation for First year = $48,000 x 40%

= $19,200

Effect on financial statements are :

1. Assets ($19,200) = Liability (0) + Equity ($19,200)

2. Revenue (0) - Expense of $19,200 = Net Loss of $19,200

3. No effect on cash flows