Mozart Ltd Acquired a Building for $1

question 6

Multiple Choice

Mozart Ltd acquired a building for $1.5 million.Management estimates the value of land to be 40% of cost.The building is estimated to have a useful life of 50 years.After 25 years,the property's fair value is estimated at 1.2 million.It is expected that the life of building will remain the same and salvage value is expected to be $100,000.Which of the following statements is correct at end of year 25 with respect to the revaluation?

• A) Net profit of will increase by $100,000.
• B) Net profit will increase by $120,000.
• C) Net profit will decrease by $220,000.
• D) Net profit is unaffected as the credit is through the asset revalution reserve.
• E) Asset revaluation reserve is increased by $100,000.

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Definitions:

Semi-Annual Interest

Interest that is calculated and paid twice a year, commonly found in bonds and certain types of loans.

Coupon Rate

Interest yielded on a bond each year, displayed as a percentage of its face value.

Market Rate Of Interest

The prevailing rate of interest available in the marketplace for securities of similar risk and maturity.

Semi-Annual Interest

Interest that is calculated and paid twice a year, typically used for bonds and loans.