Question

1--On January 1, B&B. purchased an X-Ray machine for $300,000 in cash. B&B. paid freight charges of $1,000 to the trucking company to deliver the machine to its clinic. The estimated salvage value and useful life of the X-ray machine is $2,900 and 5 years, respectively.

Under the straight-line method, what is the book value of the machine as of December 31, Year 3?

A.   $114,920

B.   $122,140

C.   $217,580

D.   $121,510

2--The records of Coppell Sports Physicians showed the following information about a copy machine purchased for $40,000:

Accumulated depreciation at December 31, Year 3	$13,000
Depreciation for the first six months of Year 4	$2,000

On July 1, Year 4, the machine was sold for $20,000. How much is the gain or loss on disposal?

1. $ 5,000 loss
2. $ 10,000 loss
3. $ 5,000 gain
4. $ 15,000 gain

3--B&B Hospitals of Dallas, acquired an 80% interest in Grapevine Doc’s on December 31 for $485,000. B&B has the ability to exercise significant influence on management decisions. During the year, Grapevine Doc’s reported net income of $80,000 and paid cash dividends of $20,000.

How should B&B account for its investment in Grapevine Doc’s?

A. Apply the equity method and perform a full consolidation.

B. Apply the equity method and report the investment at market value at year end.

C. Apply mark-to-market accounting and consolidate the statements at year end.

D. Account for the investment as a special purpose entity.

Answer 1