Answered Essay: piece of equipment was acquired on January 1, 2015, at a cost of $46,000, with an estimated residual va

1.A piece of equipment was acquired on January 1, 2015, at a cost of $46,000, with an estimated residual value of $4,000 and an estimated useful life of Four years. The company uses the double-declining-balance method. What is its book value at December 31, 2016? O $25,000 O $21,000 O $23,000 O $11.5002. 3. 4. 

A piece of equipment was acquired on January 1, 2015, at a cost of $46,000, with an estimated residual value of $4,000 and an estimated useful life of Four years. The company uses the double-declining-balance method. What is its book value at December 31, 2016? O $25,000 O $21,000 O $23,000 O $11.500

Expert Answer

 

Answer 1 :-

Under Double declining value, salvage value is ignored.

SLM depreciation = 46000 / 4 = $ 11500

SLM dep. rate = 11500 / 46000 = 25 %

DDB rate = 25 * 2 = 50 %

DDB dep. ( 2015 ) = 46000 * 50 % = $ 23000

Book value ( dec. 31, 2015 ) = 46000 – 23000 = $ 23000

Now, Dep. ( 2016 ) = 23000 * 50 % = 11500

Book value ( dec. 31, 2016 ) = $ 23000 – 11500 = $ 11500

Option D is correct.

Note :- DDB dep. is always calculated on opening book value.

Answer 2 :-

Option C is correct.

Prepaid expenses always become asset since they are paid in advance and therefore prepaid rent will be debited. Since cash was paid , therefore, cash goes out and it is credited.

Answer 3 :-

The transactions related to PPE form part of cash flow from / used in investing activities.

The transactions related to working capital like inventory, accounts receivable etc. form part of cash flow from / used in operating activities.

The transactions related to financing of a company form part of cash flow from / used in financing activities.

Here the required answer is An inflow of $ 3 million ( option C ) since bonds payable were increased by $ 3 million which means funds were raised through issuance of bonds.

Answer 4 :-

NUmber of issued shares = 15 million shares ( option C )

But number of outstanding shares = 15 million shares – 4.5 million shares = 10.5 million shares

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