Question

16.Hercules Company purchased a land and a building for $350,000. The fair value of the land was $240,000 and the fair value of the building was $160,000. Determine the amount at which Hercules will record the land.

Question 16 options:

	a. $210,000
	b. $140,000
	c. $240000
	d. $160,000
	e. $350,000

17. Timeton Inc. and Roseton Inc. purchases identical assets for $850,000 each. The assets of both the companies are estimated to have same life. However, Timeton estimates the residual value to be $6,000 and Roseton estimates the residual value to be $10,000. Both the companies use double-declining balance method of depreciation. Which of the following is true of these companies?

Question 17 options:

	a.The book value of the asset of Timeton Inc. will be greater than Roseton Inc. at the end of first year
	b. Net income of the first year of Timeton Inc. will be lesser than that of Roseton Inc.
	c. The depreciation expense of Timeton Inc. will be lesser than that of Roseton Inc.
	d. Timeton and Roseton assets will have same book value at the end of first year
	e. Roseton will have higher taxable income than Timeton.

18. Which of the following would be capitalized to equipment account?

Question 18 options:

	a. Discount received on the purchase of the equipment
	b. Cost of training employees on the proper use of equipment
	c. Depreciation cost
	d. Inventory produced by the equipment
	e. Interest paid on loan borrowed to purchase the equipment

Answer 1

1)An asset is recorded at the price at which it was purchased. Sar value of the acids are to be considered at the time of sale of asset. Therefore Hercules will record the land at a price at which the company purchased it

Therefore the correct answer is $350,000

Correct option is E

2) As both rhe companies had the same purchase price as well as a same estimated life also the method of deprication. The only difference is the total salvage value between both the companies. As the depreciation method is double declining balance method this method do not consider the salvage value in the first year. Hence the book value of both the companies will be same at the end of first year.

Define the correct answer is D

3) All those cost which are directly related to the asset on equipment required to be capitalised. Also any expenditure which is paid towards the purchase of asset are to be capitalised.

In the above case interest paid on the loan borrower to purchase the equipment is the expenditure paid towards the purchase of equipment and hence it should be capitalised.

Thereforer the correct answer is E