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ACC E113 Lecture Notes - Lecture 16: Historical Cost, Profit Margin, Book Value

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rubyporpoise450
30 Jul 2020
School
HCC
Department
Accounting
Course
ACC E113
Professor
Albaz

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Document Summary

Depreciation is an allocation of an asset"s cost over its estimated useful life to the. To keep track of an asset"s historical cost, it is accumulated in a new kind of. A contra account is an account that is an offset to, or reduction of, the account called a contra account primary account. It is directly related to another account, but has a balance on the opposite side of the t-account. As a contra account increases, the net amount (the account balance less the contra-account balance) decreases. For property and equipment, the contra account is called accumulated depreciation. We designate contra accounts with an x in front of the account. Since assets have debit balances, accumulated depreciation has a credit. On a the statement of financial position, the amount that is reported for balance. Property and equipment is its carrying amount (book value or net book.

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Related Questions

QUESTION 1 Which of the following is considered in computing depreciation expense using the straight-line method? A. Net income of the company B. Balance in accumulated depreciation C. Asset's fair value D. Cost of inventory produced by equipment E. Asset's historical cost

QUESTION 2 Which of the following methods of depreciation allocates an equal expense to each period in which the asset is used to generate revenue? A. The sum-of-years' digits method B. The units-of-production method C. The double-declining balance method D. The straight-line method E. The activity depreciation method

QUESTION 3 What type of an account is accumulated depreciation? A. Expense B. Equity C. Loss D. Liability E. Contra asset

4 Which of the following accounting principles dictates that an asset's cost should be expensed over its useful life? A. Matching B. Revenue recognition C. Going concern D. Conservatism E. Consistency 1

QUESTION 5 Opine Company uses the double-declining-balance method of depreciation. It purchases a building with a cost of $560,000, a salvage value of $32,000 and a useful life of 16 years. What is the depreciation expense for the second year? A. $61,250 B. $60,000 C. $57,750 D. $70,000 E. $66,000

QUESTION 6 Clark Company acquired a desk for $500. The estimated salvage value is $50 and the estimated life is 5 years. What journal entry should Clark make to record depreciation expense? A. Depreciation Expense 100 Desk 100 B. Depreciation Expense 90 Desk 90 C. Accumulated Depreciation 90 Depreciation Expense 90 D. Depreciation Expense 90 Accumulated Depreciation 90 E. Depreciation Expense 100 Accumulated Depreciation 100

QUESTION 7 Jacobs Company estimates that its new equipment will last 6 years and have a residual value of $3,000. The original cost of the equipment was $39,000. What would be the balance in the accumulated depreciation account at the end of year 4? A. $0 B. $26,000 C. $24,000 D. $39,000 E. $6,000

QUESTION 18 Which of the following accounts will be shown on the balance sheet with accumulated depreciation account? A. Building B. Prepaid rent C. Cash D. Land E. Goodwill

TRUE or FALSE

  1. Accumulated Depreciation is a permanent account.
  2. The dividends account is a temporary account.
  3. The accumulated depreciation is closed to the income summary account.
  4. Office equipment is an example of a current asset account.
  5. The amount of the net income for a period appears on both the income statement and the balance sheet for the period.
  6. Generally accepted accounting principles require accrual-basis accounting.
  7. Unearned revenue is a liability.
  8. The financial statement is prepared from the unadjusted trial balance.
  9. After analyzing transactions, the next step is to post the transaction in the ledger.
  10. Prepaid insurance is an example of a current asset. 

Sale of Equipment

Equipment was acquired at the beginning of the year at a cost of $38,500. The equipment was depreciated using the double-declining-balance method based on an estimated useful life of ten years and an estimated residual value of $750.

a. What was the depreciation for the first year?
$

b. Assuming the equipment was sold at the end of year 2 for $9,480, determine the gain or loss on the sale of the equipment.
$ Loss

Feedback

Book value is the asset cost minus accumulated depreciation. In the first year, the balance in the accumulated depreciation account is zero.

Compare the book value to the sale price. If the book value is more than the sale price, the equipment was sold for a loss. If the book value is less than the sale price, the equipment was sold for a gain.

Learning Objective 3.

c. Journalize the entry to record the sale. If an amount box does not require an entry, leave it blank.

Cash
Accumulated Depreciation-Equipment
Loss on Sale of Equipment
Equipment

Feedback

Be sure to record the selling price of the fixed asset. If the company no longer has the fixed asset what account(s) would need to be eliminated? Was there a gain or a loss on the sale?