When Deciding Whether or Not to Replace Old Equipment with New

question 4

Multiple Choice

When deciding whether or not to replace old equipment with new equipment, the overriding consideration is the

• A) book value of the old equipment.
• B) cost of replacing the old equipment.
• C) salvage value of the old equipment.
• D) difference between future cost savings and the new equipment's costs.

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Definitions:

Business Combination

Occurs when one company acquires control over another, resulting in the merging of assets, liabilities, and operations into a single entity.

One-Line Consolidation

A method of including a subsidiary's information in a parent company's financial statements by a single line representing the investment's net value.

Consolidation

The process of combining the financial statements of a parent company with those of its subsidiaries to present the accounts as if the group of companies was a single entity.

Cost Method

An accounting technique used to record investments at their original purchase cost, adjusting for dividends received and not for changes in market value.