Electrical Engineering Equipment Ltd

question 48

Multiple Choice

Electrical Engineering Equipment Ltd.purchased a machine for $100,000; current accumulated amortization totals $40,000.Management is contemplating the purchase of a new machine for $120,000.Current disposal of the old machine would cost $65,000.What is the correct category for each item?

• A)Irrelevant: $120,000 of new machine, $40,000 accumulated amortization; Relevant: $100,000 cost of old machine, $65,000 of disposal of old machine, $5,000 gain on sale
• B)Irrelevant: $100,000 cost of old machine, $40,000 accumulated amortization; Relevant: $120,000 cost of new machine, $5,000 gain on sale, $65,000 disposal of old machine
• C)Irrelevant: $120,000 cost of new machine, $65,000 disposal of old machine; Relevant: $100,000 cost of old machine, $60,000 book value of old machine, $5,000 gain on sale
• D)Irrelevant: $100,000 cost of old machine, $60,000 book value of old machine; Relevant: $120,000 cost of new machine, $65,000 disposal of old machine, $5,000 gain on sale
• E)Irrelevant: $100,000 cost of old machine, $40,000 accumulated amortization, $5,000 gain on sale; Relevant: $120,000 cost of new machine, $65,000 disposal of old machine

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Definitions:

Income Summary

An account to which the revenues and expenses are transferred in order to close the books; it reflects the net income or loss at the end of a period.

Owner's Capital Account

An account on a company's balance sheet that represents the owner's investment and retained earnings in the business.

Credit Balance

This represents the amount that a company or individual owes to creditors; in accounting, it indicates a balance on the right side of a ledger.

Owner's Drawings Account

A specific account used to track the withdrawals made by the owner from the business for personal use, rephrased from