Question

1) Grasshopper Room Company acquired land and buildings for $1,500,000. The land is appraised at $475,000 and the buildings are appraised at $775,000. The debit to the Buildings account will be:
A. $930,000
B. $775,000
C. $570,000
D. $1,025,000

2) Blockware Corporation has selected to use the revaluation model for its assets. Recently it had its building appraised. The appraiser placed a $5.0 M value on the building. Back in 2012 this building was purchased for $4.0M. This increases in value over cost requires a:
A.Dr. to accumulated depreciation
B.Dr. to revaluation surplus
C.Cr. to revaluation surplus
D.Cr. to the building account

3)Big Rock Times Corporation (BRT) acquired equipment on January 1, 2014, for $300,000. The equipment had an estimated useful life of 10 years and an estimated salvage value of $25,000. On January 1, 2017, BRT Corporation revised the total useful life of the equipment to 6 years and the estimated salvage value to be $10,000. Compute the book value of the equipment as of December 31, 2017, if BRT Corporation uses straightminus−line depreciation.
A.$148,333
B.$151,667
C.$190,000
D.$155,000

4)A loss is recorded on the sale of property, plant, and equipment when:
A. the asset's book value is greater than the amount of cash received from the sale
B. the asset is sold for a price greater than the asset's book value
C. a loss on the sale of property, plant, and equipment is not allowed according to GAAP
D. the asset's book value is less than the balance in Accumulated Depreciation

Answer 1

• Answer 1

The amount debited to the building = 1500000 x [775000/(475000 + 775000)]

= 1500000 x ( 775000 / 1250000 )

= 1500000 x 0.62

= $ 930,000

Correct Answer = Option ‘A’ $ 930,000

• Answer 2

Since the appraised value of $ 5.0 M is more than $ 4.0 M which was the original cost, the increase in value OVER COST requires Credit to Revaluation Surplus .

Correct Answer = Option ‘C’ Cr to revaluation surplus.

• Answer 3

A	Original Cost	$              300,000
B	Original Salvage value	$                 25,000
C = A- B	Original Depreciable base	$              275,000
D	Original estimated life	10
E = C/D	Original Annual Depreciation	$                 27,500
F = E x 3 years	Accumulated depreciation [1 Jan 2014 to 31 Dec 2016]	$                 82,500
G = A - F	Book Value at the time of revision of estimates	$              217,500
H	New salvage value	$                 10,000
I = G - H	New Depreciable base	$              207,500
J	New total life	6
K = J - 3 years	Estimated life remaining	3
L = I/K	2017's new depreciation expense	$                 69,167
M = G - L	Book Value on Dec 31, 2017	$              148,333

Correct Answer = Option ‘A’ $ 148,333

• Answer 4

Correct Answer = Option ‘A’ A loss on sale of PPE is when the assets’ book value is greater than the amount of Cash received from the sale.