On the First Day of the Year Major Renos Purchased

question 53

Multiple Choice

On the first day of the year Major Renos purchased scaffolding for $25 000 which is to be depreciated over 10 years with a zero residual value. At the end of the first year:

• A) Depreciation in the income statement is $1250 and the carrying value of the scaffolding in the balance sheet is $23 750.
• B) Depreciation in the income statement is $5 000 and the carrying value of the scaffolding in the balance sheet is $20 000.
• C) Depreciation in the income statement is $2 500 and the carrying value of the scaffolding in the balance sheet is $22 500.
• D) Depreciation in the income statement is $0 and the carrying value of the scaffolding in the balance sheet is $25 000.

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Definitions:

Income Effect

Describes how a change in an individual's income affects their purchasing decisions.

Substitution Effect

The shift in buying habits because of variations in the prices of different products, causing individuals to substitute pricier options with more affordable ones.

Labor Supply

The total hours that workers are willing and able to work at a given wage rate in an economy.

Time Allocation

The decision about how many hours to spend on different activities, which leads to a decision about how much labor to supply.