Minor Company Installs a Machine in Its Factory at the Beginning

question 11

Multiple Choice

Minor Company installs a machine in its factory at the beginning of the year at a cost of $135,000. The machine's useful life is estimated to be 5 years, or 300,000 units of product, with a $15,000 salvage value. During its first year, the machine produces 64,500 units of product. What journal entry would be needed to record the machines' first year depreciation under the units-of-production method?

• A)Debit Depletion Expense $25,800; credit Accumulated Depletion $25,800.
• B)Debit Depletion Expense $29,025; credit Accumulated Depletion $29,025.
• C)Debit Depreciation Expense $29,025; credit Accumulated Depreciation $29,025.
• D)Debit Depreciation Expense $25,800; credit Accumulated Depreciation $25,800.
• E)Debit Amortization Expense $24,000; credit Accumulated Amortization $24,000.Depreciation Expense = [($135,000 - $15,000)/300,000] * 64,500 = $25,800

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Definitions:

Fraudulent Misrepresentation

A wrongful statement, action, or concealment, pertinent to the subject matter of a contract, that is knowingly made to damage the other party.

Sales Puffery

Persuasive words or exaggerated arguments made by salespeople to induce customers to buy their product. As long as such comments are reserved to opinion and do not misstate facts, they are not actionable as fraud, even if they turn out to be grossly in error. Also called puffery.

Bait-and-Switch

A deceptive marketing strategy where a seller advertises a product at a low price to attract customers, then persuades them to buy a more expensive item.

Cooling-Off Rule

A regulation that allows consumers a set period of time after a purchase to cancel a transaction, usually employed in sales made at home or locations other than the seller's place of business.