On January 1, 2010, Herschel Locks Corporation Purchased Drilling Equipment

question 54

Multiple Choice

On January 1, 2010, Herschel Locks Corporation purchased drilling equipment for $11,500. The equipment has an estimated useful life of four years and a salvage value of $200. Given this information, if Herschel uses the sum-of-the-years'-digits method of depreciation and then trades the equipment for new equipment with a fair market value of $16,000 on December 31, 2011, and pays $8,000 cash in the exchange, assuming the exchange has commercial substance, the new equipment should be recorded at

• A) $16,000.
• B) $12,475.
• C) $11,590.
• D) $8,110.

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Definitions:

Alpha Level

Alpha level, or significance level, is the threshold of probability at which you reject the null hypothesis, typically set at 0.05 or 5%.

Critical Values

Critical values are specific points on the scale of a test statistic that determine the boundary for rejecting the null hypothesis.

Type I Error

The incorrect rejection of a true null hypothesis, or a false positive, in statistical hypothesis testing.

P-value

A measure in hypothesis testing that indicates the probability of obtaining a result at least as extreme as the one observed, assuming the null hypothesis is true.