Question

1. Stuart Company purchased a computer that cost $5,000. It had an estimated useful life of...

1. Stuart Company purchased a computer that cost $5,000. It had an estimated useful life of five years and no residual value. The computer was depreciated by the straight-line method and was sold at the end of the third year of use for $3,000 cash. Which of the following statements correctly describes the computer sale?

A. Assets and stockholders' equity both increase by $3,000.

B. Assets increase $3,000 and stockholders' equity is not affected.

C. Assets and stockholders' equity both decrease by $1,000.

D. Assets and stockholders' equity both increase by $1,000.

E. Assets and stockholders’ equity are not affected.

2. On March 1, Wright Company purchased new equipment for $50,000 by paying cash. Other costs associated with the equipment were: sales tax paid $3,000 and installation cost, $3,500. The equipment had a residual value of $1,000. At what amount will the equipment be initially recorded at on the balance sheet?

A. $50,000

B. 54,000

C. 56,500

D. 49,000

E. 53,000

3. A company sells a piece of equipment for more than it's book value. The transaction results in a:

A.Gain

B. Loss

C. Revenue

D. Expense

4. Which of the following describes the effect of recording depreciation expense at year-end?

A. Total assets decrease and stockholders' equity is not affected.

B. Net income decreases and total assets decrease.

C. Net income decreases and total assets are not affected.

D. Stockholders' equity is not affected and net income decreases.

E. Total assets increase and stockholders’ equity decreases.

Business   Accounting   
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Homework Answers

Answer #1
1
Annual depreciation = 5000/5 = $1000
Accumulated depreciation at the end of the third year = 1000*3 = $3000
Book value at the end of the third year = 5000-3000 = $2000
Gain on sale = 3000-2000 = $1000
Assets and stockholders' equity both increase by $1,000.
Option D is correct
2
Purchase price 50000
Add: Sales tax paid 3000
Add: Installation cost 3500
Equipment cost 56500
Option C is correct
3
The transaction results in a Gain
Option A is correct
4
Net income decreases and total assets decrease.
Option B is correct
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