Lorman Manufacturing Purchases Equipment with an Expected Life of 10

question 3

Multiple Choice

Lorman Manufacturing purchases equipment with an expected life of 10 years for $50,000.The equipment has an estimated salvage value of $2,000.Lorman expects the new equipment to generate annual cost savings of $8,000.What is the payback period of the equipment?

• A)6 years
• B)6.25 years
• C)6.50 years
• D)10 years

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Definitions:

General Ledger

The master accounting document providing a complete record of all financial transactions of a company.

Revenue Recognition

The accounting principle that determines the specific conditions under which income becomes recognized as revenue.

Statement

A financial report providing information about an entity's financial position, performance, or changes in financial position, which can influence economic decisions.

Cheque

A written, dated, and signed instrument that directs a bank to pay a specific sum of money to the bearer or to a specified person.