Question

1. Jim Parra and Mary Lawson, maintenance repair workers, spent five days in unloading and setting up a new $6,000 precision machine in the plant. The wages earned in this five-day period, $480, are recorded__________

The attic of the administration building was finished at a cost of $3,000 to provide an additional office__________________

A. Machine; Building

B. Machine; Repairs Expense

C. Repairs expense; Building

D. Expense; Expense

2. Equipment that has fair value of 300,000, cost $600,000 and has accumulated depreciation of $475,000 is exchanged for equipment with a fair value of $240,000 and $60,000 cash. The exchange lacked commercial substance. Pick the TRUE statement about the gain/loss recognized as well as the cost of new equipment recorded by BobCat Inc.

A. DR Equipment 100,000
CR Gain 175,000

B. DR Equipment 240,000
CR Gain 175,000

C. DR Equipment 300,000

CR Gain 175,000

D. DR Equipment 300,000

CR Gain 35,000

E. DR Equipment 100,000
CR Gain 35,000

F. DR Equipment 240,000
CR Gain 35,000

Answer 1

1. A. Machine; Building

Explanation: Since, the expenses incurred relates to expenses before the start of operations by the asset, hence the same needs to be recorded as cost of asset and hence debited to assets.

2. C.

DR Equipment 3,00,000

CR Gain 1,75,000

Explanation: Cost of Equipment = Fair Value of equipment acquired + Cash Paid = 2,40,000 + 60,000 = 3,00,000

Gain = Fair Value - Book Value = Fair Value - (Cost of Equipment - Accumulated Depreciation) = 3,00,000 - (6,00,000 - 4,75,000) = 3,00,000 - 1,25,000 = 1,75,000.