Use the Following Information for Questions
Chung Inc If the Old Equipment Is Replaced Now, It Can Be

question 20

Multiple Choice

Use the following information for questions
Chung Inc. is considering the replacement of a piece of equipment with a newer model. The following data has been collected: $\begin{array}{lrr}&\text { Old Equipment}&\text { New Equipment }\\\text { Purchase price } & \$ 225,000 & \$ 375,000 \\\text { Accumulated depreciation } & 90,000 & -0- \\\text { Annual operating costs } & 300,000 & 240,000\end{array}$ If the old equipment is replaced now, it can be sold for $60,000. Both the old equipment's remaining useful life and the new equipment's useful life is 5 years.
-What is the net cost of the new equipment?

• A) $375,000
• B) $315,000
• C) $150,000
• D) $75,000

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Definitions:

Cost Flow Assumptions

Accounting principles that dictate how the cost of goods sold and ending inventory values are calculated, such as FIFO (First-In, First-Out) or LIFO (Last-In, First-Out).

LIFO

"Last In, First Out" - an inventory valuation method where the most recently produced or purchased items are recorded as sold first.

FIFO

"First-In, First-Out," an inventory valuation method where goods first purchased or produced are the first to be sold or used.

Weighted Average

Weighted average is a calculation that takes into account the varying degrees of importance of the numbers in a dataset, assigning weights to some of the numbers more than others.