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:

Cost of Goods Sold

The total direct costs attributable to the production of goods sold by a company.

T-Accounts

A graphical representation used in accounting to show the debit and credit transactions affecting each aspect of a company's finances or accounts.

Raw Materials

Basic materials that are used in the production process to manufacture products, before any processing or manufacturing has occurred.

Finished Goods

Items that are finished being made but have not been purchased by consumers yet.