Accounting for managerial decisions

Which of the following costs related to the purchase of production equipment incurred by BBC Company during 2013 would be considered an expense (revenue expenditure)?

• a. Purchase price of the equipment less than the cash discount
• b. Repair and maintenance costs during the equipment’s first year of service
• c. Transportation charges to deliver the equipment to BBC Company

Clear Window

Cleaners purchased new cleaning equipment at the beginning of 2013. The equipment has a cost of $37 000, an estimated life of five years, and an estimated residual value of $7 000. A full year’s depreciation expense is to be recorded in 2013. The equipment was used 20 000 hours during 2013 and 24 000 hours during 2014. The number of expected hours over five years is 100 000. Clear Window is comparing the straight-line and reducing-balance depreciation methods. Of these two methods, which method creates the larger expense and larger tax savings in 2013?

• a. Straight-line depreciation creates the larger expense, while reducing-balance depreciation creates the larger tax savings
• b. Straight-line depreciation creates both the larger expense and the larger tax paving
• c. Reducing-balance depreciation creates both the larger expense and the larger tax
• d. Reducing-balance depreciation creates the larger expense, while straight-line depreciation creates the larger tax savings

Current accounting standard SAAB 116 indicates that the costs of intangible assets with an indefinite life, such as goodwill, should:

• a. Not be amortized, but should be reviewed annually for impairment
• b. Be reported on the statement of retained earnings in the year in which acquired
• c. Be debited to an expense account entirely in the year in which acquired

The equipment had cost $45 000 and its accumulated depreciation amounted to $20 000 at the time of the sale. What are the net effects on the accounting equation of selling the equipment?

• a. Assets and equity increase $30 000
• b. Assets decrease and equity increases $5 000
• c. Assets and equity decrease $5 000 8. Wong purchased equipment at the beginning of July 2012 for $21 000. Wong decided to depreciate the equipment over a five year period using the straight-line method. Wong estimated the equipment’s residual value at $1 000. The estimated fair market value at the end of June 2013 was $20 000.

Which of the following statements is correct concerning Wing’s financial statements at 30 June 2013?

• a. The carrying amount of the equipment is $16 000
• b. The carrying amount of the equipment is $17 000
• c. The total accumulated depreciation is $4 200
• d. The equipment will be reported on the statement of financial position at its fair market value of $20 000

Chou Zero purchased equipment at the beginning of July 2013 for $200 000. Chou Zero decided to depreciate the equipment over a five year period using the reducing-balance method. Chou Zero estimated the equipment’s residual value at 20 000. Which of the following statements is correct concerning Chou Zero’s financial statements at 30 June 2014?

• a. The carrying amount of the equipment is $120 000
• b. The carrying amount of the equipment is $80 000
• c. The total accumulated depreciation is $90 000
• d. Depreciation expense for 2013 is $72 000

The effect of recording depreciation for the year is:

• a. A decrease in assets and a decrease in total comprehensive income
• b. An increase in assets and an increase in total comprehensive income
• c. A decrease in total comprehensive income and no change in assets