Question

QUESTION 1 Take Test: Chapter 9 Quiz - Principles of Acco An asset was purchased in 2016 at a cost of $10,000. It was depreciated using the straight-line method with a 5-year useful life and the half-year convention. During 2018, the asset was sold. What is the book value of the asset at the time of the sale (Assume the correct amount of depreciation was recorded in 2016, 2017, and 2018.) $6,000 $4,000 $2,000 $10,000 QUESTION 2 10 On March 15, Smith industries purchased a new packaging machine for use in their business. Which of the following terms would be included in the cost of the machine (please select all that apply) A delivery charge of $400 to get the machine to the factory An installation fee of $800. A fee of $1,000 to train the initial workers on the use of the machine A $500 maintenance fee to lubricate the machine after 6 months of use

Answer 1

Amser 1: $6000

($10000 less $4000 depriciation as first year $1000, second year $2000 and final year $1000. As half year convention applied in 2016 and 2018.

Answer 2: A delivery charges of $400 to get the machine to the factory and A installation fee of 800.)

(First two are correct because the cost of an asset takes into consideration all of the items that is linked to its purchase and to putting the asset to use. These costs include the purchase price, commissions, transportation, installation and testing.

Training cost and repair cost is related to using the machinery when machinery has been put into working condition hence it is an expense.)

Answer3: The item would be an expense and not shown on the balance sheet.

(The most common patent-valuation method is the economic-analysis method.

The economic-analysis valuation method has three approaches: cost, income, and market.

Cost: The amount that would be necessary to replace the protection right on the invention.

Income: This method looks to future cash flows in determining valuation of the invention.

Market: This method involves determining the willingness of buyer to pay for similar kind of invention.)

Answer 4: 20%

(Under the straight-line method, the 10 year of useful life means the annual depreciation is 10% of the cost. Under the double declining balance method the 10% rate is doubled to 20%.)