Question

1. In the balance sheet of a company, retained earnings is a type of …………

1. Accounts payable
2. Equity               
3. Debt                        
4. a, b and c are wrong

2. The cash generated by the salvage value (of a used asset) when we sell the asset is a cash flow associated with ………….

1. Operating activities  
2. Investing activities
3. Financing activities
4. None of the above

3. TRUE or FALSE? Under MACRS, in depreciation process of real properties, mid-year convention is used.

4. TRUE or FALSE? In book depreciation method, the salvage value of property is assumed to be zero.

5. TRUE or FALSE? Cost basis for tax depreciation is not the same as cost basis for book depreciation.

Answer 1

1) b option is correct

As retained earning is type of equity comes under shareholders equity

2) b option is correct

As salvage value is cash from sale of long term asset

3) true but it is used when 40% of depreciable assets are purchased during the last 3 months of the tax year

4) false as in book depreciation method, straight line method to determine amount that can be depreciated is calculated by subtracting salvage value from cost of asset

5) true, book depreciation recorded in companies general ledger account while tax depreciation recorded in companies income tax return

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