Use the Following Information for Questions

question 14

Multiple Choice

Use the following information for questions.
On January 1, 2011, Edmondton Inc.purchased equipment with a cost of €4,500,000, a useful life of 12 years and no salvage value.The Company uses straight-line depreciation.At December 31, 2011, the company determines that impairment indicators are present.The fair value less cost to sell the asset is estimated to be €3,850,000.The asset's value-in-use is estimated to be €3,500,000.There is no change in the asset's useful life or salvage value.
-In 2002, Horton Company purchased a tract of land as a possible future plant site.In January, 2010, valuable sulphur deposits were discovered on adjoining property and Horton Company immediately began explorations on its property.In December, 2010, after incurring $400,000 in exploration costs, which were accumulated in an expense account, Horton discovered sulphur deposits appraised at $2,250,000 more than the value of the land.To record the discovery of the deposits, Horton should

• A)make no entry.
• B)debit $400,000 to an asset account.
• C)debit $2,250,000 to an asset account.
• D)debit $2,650,000 to an asset account.

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Definitions:

Amortized Cost

Amortized cost refers to the adjusted value of an asset or a debt over a specific period of time, taking into account any related expenses or reductions.

Amortized Cost

A financial term referring to the gradual reduction of a debt over a period of time through regular payments covering both principal and interest.

Return On Total Assets

A financial ratio that measures the profitability of a company by calculating how effectively a company uses its total assets to generate profit.

Consolidated Financial Statements

Financial statements that present the assets, liabilities, equity, revenue, expenses, and cash flows of a parent company and its subsidiaries as one entity.