Kentucky Enterprises Purchased a Machine on January 2, 2010, at a Cost

question 9

Multiple Choice

Kentucky Enterprises purchased a machine on January 2, 2010, at a cost of $120,000. An additional $50,000 was spent for installation, but this amount was charged erroneously to repairs expense. The machine has a useful life of five years and a salvage value of $20,000. As a result of the error,

• A) retained earnings at December 31, 2011, was understated by $30,000 and 2011 income was overstated by $6,000.
• B) retained earnings at December 31, 2011, was understated by $38,000 and 2011 income was overstated by $6,000.
• C) retained earnings at December 31, 2011, was understated by $30,000 and 2011 income was overstated by $10,000.
• D) 2010 income was understated by $50,000.

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Definitions:

Substitute Labor

involves using alternative workforce options, such as temporary or gig workers, in place of regular employees to perform tasks or jobs.

Price of Capital

The cost of using capital assets, reflected in the interest rate or rate of return that investors demand for using their capital.

Total Product

The overall quantity of output that a firm produces, usually in a given period of time, measured in terms of units.

Average Product

The output per unit of input, calculated by dividing the total product by the quantity of input.