Question

1)Cane Inc purchased a machine costing $80,000 on January 2nd of year 1. The machine is expected to last 9 years with a salvage value of $8,000. Cane sold the machine for $65,000 on July 1st of year 3. What was the gain or loss recognized on the sale? $7,222 loss $5,000 loss $7,222 gain $5,000 gain

2.)Rider Inc purchased a machine costing $70,000 on January 3rd. The machine is expected to last 10 years and 10,000 hours with a salvage value of $4,000. During the first year the machine was used 1,800 hours. What is annual depreciation if Rider uses the units of production method? $11,880 $6,600 $7,000 $13,500

3.)

Which of the following is an example of a revenue expenditure?

		oil change for vehicle
		installing a new lift on delivery truck
		purchasing a piece of equipment
		purchasing supplies

Answer 1

1) gain 5000 is right option

it is assumed that the company use the fixed installment method for charging depreciation so as the data given in question

Cost of machine. = 80000

Expected life of machine. = 9 year

Salvage value = 8000

So yearly depreciation =

(cost of machine) - (Salvage value) /Expect life

or. (80000) - (8000)/9.

or. 72000/9

or. 8000

Now

Cost of machine.On date 2 Jan first year =80000

Less:Depriciation for 30 months. =20000

30/12*8000

(From January 2 year1 toJuly 1of year 3). _____ value of the machine on date of sale = 60000

Sale price of the machine. =. 65000

So gain of sale is (65000 - 60000). = 5000

2). 118800 is correct option

As per the question

Cost of the machine = 70000

Salvage value. = 4000

Depriciable value is (70000-4000)= 66000

Because unit of production method used it is suitable to use expected life in hours

Expected life in hours. = 10000

Machine hours used =1800

So depreciation(66000*1800/10000). =118800

3)

Purchasing supplies is correct option

As the remaining options are belong to capital expenditure not a revenue expenditure

oil chang in vehicle seems an expenses that beneficial for more than one accounting period so it is a capital expenditure

Installing a new lift on delivery truck is also a capital expenditure as it result a capital asset

Last purchasing a piece of equipment is a capital expenditure