Financial Accounting Terms in this set (162) Financial Accounting Financial Accounting The accounting
... [Show More] equation for Quattro Enterprises is as follows: Assets Liabilities Stockholders' Equity $120,000 = $60,000 + $60,000 If Quattro purchases office equipment on account for $25,000, the accounting equation will change to Assets Liabilties Stockholders' Equity a. $120,000 = $60,000 + $60,000 b. $145,000 = $60,000 + $85,000 c. $145,000 = $72,500 + $72,500 d. $145,000 = $85,000 + $60,000 d. $120,000 + $25,000 = $145,000; $60,000 + $25,000 = $85,000 Financial Accounting If a corporation distributes cash to its stockholders, then stockholders' equity will decrease. Liabilities of a company are owed to creditors Which of the following statements is correct? Stockholders' equity can be described as ownership claim on total assets An income statement presents the revenues and expenses for a specific period of time. Financial Accounting Barsuk Company $483,000. began the year with stockholders' equity $108,000 + $147,000 + (X - of $108,000. During $420,000) - $28,000 = the year, Barsuk $290,000; X = $483,000 issued stock for $147,000, recorded expenses of $420,000, and paid dividends of $28,000. If Barsuk's ending stockholders' equity was $290,000, what was the company's revenue for the year? Financial Accounting Financial Accounting Black Keys Company $340,000. began the year with stockholders' equity $280,000 + ($375,000 - of $280,000. During $285,000) - $30,000 = $340,000 the year, the company recorded revenues of $375,000, expenses of $285,000, and paid dividends of $30,000. What was Black Keys' stockholders' equity at the end of the year? If expenses are paid in cash, then assets will decrease. If total liabilities increased by $8,000, then assets must have increased by $8,000, or stockholders' equity must have decreased by $8,000. Financial Accounting The accounting Choice #2 equation for Doug Corp. is as follows: Assets Liabilities Explanation: Stockholders' Equity Increase assets by $10,000 to $90,000 = $50,000 + $100,000 because the purchase $40,000 of $10,000 worth of equipment If Doug Corp. (an asset) increases assets. purchases office Increase liabilities by $10,000 to equipment on $60,000 because Doug Corp. account for $10,000, purchased the $10,000 of the accounting equipment on account which equation will change means Doug Corp. increases their to Accounts Payable (liability Assets Liabilties Stockholders' Equity account) by $10,000, which thus $90,000 = $60,000 + increases liabilities. $30,000 $100,000 = $60,000 + $40,000 $100,000 = $50,000 + $50,000 $95,000 = $55,000 + $40,000 Financial Accounting Financial Accounting Financial Accounting Financial Accounting Fat Possum's Service $240,000 Shop started the year with total assets ($330,000 - $240,000) + of $330,000 and ($630,000 - $420,000) - total liabilities of $60,000 = $240,000 $240,000. During the year, the business recorded $630,000 in revenues, $420,000 in expenses, and paid dividends of $60,000. Stockholders' equity at the end of the year was: A dividend is a distribution of the company's earnings to its stockholders. Sources of increases to stockholder's equity are additional investments by owners. Financial Accounting Kennedy Company $135,000. issued stock to Ed Kennedy in $555,000 - $420,000 = exchange for his $135,000. investment of $75,000 cash in the business. The company recorded revenues of $555,000, expenses of $420,000, and had paid dividends of $30,000. What was Kennedy's net income for the year? Financial Accounting Financial Accounting Financial Accounting Financial Accounting Financial Accounting Financial Accounting Financial Accounting Dividend 3,000 Salary Expenses...................................... Notes Receivable .......1,000 8,100 Total debits $248,600 Prepaid Insurance 6,400 Supplies 800 Salary Expenses 1,000 Prepaid Rent 1,200 What amount are shown as the total debits on its trial balance? A trial balance is a listing of general ledger accounts and their balances Financial Accounting Financial Accounting Financial Accounting information given, which of the statements is correct about ending balance of cash at the end of June assuming the balance of cash at the beginning of June is a debited amount of $2,800? An accountant has Credit a different asset account debited an asset for $700. account for $1,200 and credited a $1,200 (debit) = $500 (credit) + liability account for X; X = $700 Credit $500. What can be done to complete the recording of the transaction? Financial Accounting Financial Accounting Financial Accounting An accountant has Debit a Stockholders' account for debited an asset $800. account for $1,300 and credited a $1,300 (debit) = $500 (credit) + liability account for X; X = $800 Credit, not Debit $500. Which of the following would be an incorrect way to complete the recording of the transaction? The normal balance of any account is the side which increases that account. Salaries and Wages Expense 500 Which of the following journal Advertising Expense entries is recorded 1,000 correctly and in the standard format? Cash 1,500 Financial Accounting On January 14, a debit to Supplies and a credit to Edamame Industries Accounts Payable. purchased supplies of $700 on account. The entry to record Supplies the purchase will $700 Accounts Payable $ 700 include Financial Accounting Electrelane Company showed the following balances at the end of its first year: Cash $ 4,000 Prepaid insurance 7,000 Accounts receivable 5,000 Accounts payable 4,000 Notes payable 6,000 Common stock 2,000 Dividends 1,000 Revenues 32,000 Expenses 25,000 What did Electrelene Company show as total credits on its trial balance? $44,000 Accounts payable $ 4,000 Notes payable 6,000 Common stock 2,000 Revenues 32,000 Total credits $44,000 Financial Accounting On October 3, Karl credit to Accounts Payable. Schickele, a carpenter, received a cash payment for services previously billed to a client. Karl paid his telephone bill, and he also bought equipment on credit. For the three transactions, at least one of the entries will include a A trial balance A transposition error when would only help in transferring the debit side of detecting which one journal entry to the ledger of the following errors? Financial Accounting Sonic Youth Corporation purchased a one- year insurance policy in January 2015 for $49,500. The insurance policy is in effect from March 2015 through February 2016. If the company neglects to make the proper year-end adjustment for the expired insurance net income and assets will be overstated by $41,250. Solution: $49,500 ´ 10/12 = $41,250 overstated If a company fails to expense will be understated. make an adjusting entry to record supplies expense, then Financial Accounting Fugazi City College will include a debit to Unearned sold season tickets Ticket Revenue and a credit to for the 2015 football Ticket Revenue for $90,000. season for $240,000. A total of 8 games $240,000 × 3/8 = $90,000 will be played during September, October and November. In September, three games were played. The adjusting journal entry at September 30 If a business pays Unearned Rent Revenue. rent in advance and debits a Prepaid Rent account, the company receiving the rent payment will credit Financial Accounting which of the following statements is correct? A. Unearned revenues are revenue for services performed but not yet received in cash or recorded. B. A liability—revenue relationship exists with unearned revenue adjusting entries. C. An asset— expense relationship exists with accrued expense adjusting entries. B is correct D. Depreciation expense for a period Financial Accounting accumulated depreciation. On January 1, 2014, $2,520 Doolittle Company purchased furniture Solution: for $7,560. The $7,560 × 1/3 = $2,520 company expects to use the furniture for 3 years. The asset has no salvage value. The book value of the furniture at December 31, 2015 is Financial Accounting Pixies Inc. pays its rent of $54,000 annually on January 1. If the February 28 monthly adjusting entry for prepaid rent is omitted, which of the following will be true? A. Failure to make the adjustment does not affect the February financial statements. B. Expenses will be overstated by $4,500 and net income and stockholders' equity will be understated by $4,500. Only D is correct Solution: $54,000 ¸ 12 = $4,500 Financial Accounting and net income and stockholders' equity will be understated by $9,000. D. Assets will be overstated by $4,500 and net income and stockholders' equity will be overstated by $4,500. Soundgarden $10,920 Company collected $18,200 in May of $18,200 × 3/5 = $10,920 2015 for 5 months of service which would take place from October of 2015 through February of 2016. The revenue reported from this transaction during 2015 would be Financial Accounting What is the proper Debit Insurance Expense, adjusting entry at $12,500; Credit Prepaid June 30, the end of Insurance, $12,500. the fiscal year, based on a prepaid $18,500 - $6,000 = $12,500 insurance account balance before adjustment, $18,500, and unexpired amounts per analysis of policies of $6,000? If a resource has an adjusting entry should be been consumed but made recognizing the expense. a bill has not been received at the end of the accounting period, then Financial Accounting Expenses sometimes make their contribution to revenue in a different period than when they are paid. When salaries and wages are incurred in one period and paid in the next period, this often leads to which account appearing on the balance sheet at the end of the time period? Salaries and Wages Payable. Financial Accounting Lake of Fire Company purchased supplies costing $7,000 and debited Supplies for the full amount. At the end of the accounting period, a physical count of supplies revealed $1,900 still on hand. The appropriate adjusting journal entry to be made at the end of the period would be Debit Supplies Expense, $5,100; Credit Supplies, $5,100. Financial Accounting The balance in the Prepaid Rent account before adjustment at the end of the year is $21,000, which represents three months' rent paid on December 1. The adjusting entry required on December 31 is to debit Rent Expense, $7,000; credit Prepaid Rent, $7,000. $21,000 ÷ 3 = $7,000 Dreamtime Laundry purchased $7,000 worth of supplies on June 2 and recorded the purchase as an asset. On June 30, an inventory of the supplies indicated only $1,000 on hand. The adjusting entry that should be made by the company on Debit Supplies Expense, $6,000; Credit Supplies, $6,000. $7,000 - $1,000 = $6,000 Financial Accounting Ultramega Company collected $19,600 in May of 2015 for 4 months of service which would take place from October of 2015 through January of 2016. The revenue reported from this transaction during 2015 would be $14,700. $19,600 × 3/4 = $14,700 Financial Accounting REM Real Estate received a check for $27,000 on July 1 which represents a 6 month advance payment of rent on a building it rents to a client. Unearned Rent Revenue was credited for the full $27,000. Financial statements will be prepared on July 31. REM Real Estate should make the following adjusting entry on July 31: Debit Unearned Rent Revenue, $4,500; Credit Rent Revenue, $4,500. $27,000 ÷ 6 = $4,500 Financial Accounting Crue Company had the following transactions during 2015: Sales of $4,800 on account Collected $2,000 for services to be performed in 2016 Paid $1,625 cash in salaries Purchased airline tickets for $250 in December for a trip to take place in 2016 What is Crue's 2015 net income using accrual accounting? $3,175. $4,800 - $1,625 = $3,175 Financial Accounting Ryan Adams, an employee of Heartbreaker Corp., will not receive his paycheck until April 2. Based on services performed from March 15 to March 31, his salary was $1,000. The adjusting entry for Heartbreaker Corp. on March 31 is Salaries and Wages Expense 1,000 Salaries and Wages Payable 1,000 Financial Accounting On July 1, Runner's Sports Store paid $14,000 to Corona Realty for 4 months rent beginning July 1. Prepaid Rent was debited for the full amount. If financial statements are prepared on July 31, the adjusting entry to be made by Runner's Sports Store is Debit Rent Expense, $3,500; Credit Prepaid Rent, $3,500. $14,000 ÷ 4 = $3,500 If prepaid expenses are initially recorded in expense accounts and have not all been used at the end of the accounting period, the failure to make an adjusting entry will cause assets to be understated Financial Accounting Meat Puppets Company purchased equipment for $7,200 on December 1. It is estimated that annual depreciation on the equipment will be $1,800. If financial statements are to be prepared on December 31, the company should make the following adjusting entry: Debit Depreciation Expense, $150; Credit Accumulated Depreciation, $150. $1,800 ÷ 12 = $150 Financial Accounting Employees at Tengo Corporation are paid $15,000 cash every Friday for working Monday through Friday. The calendar year accounting period ends on Wednesday, December 31. How much salaries and wages expense should be recorded two days later on January 2? $6,000 $15,000 × 2/5 = $6,000 Mary Chain Investments purchased an 18- month insurance policy on May 31, 2015 for $3,600. The December 31, 2015 balance sheet would report Prepaid $2,200. ($3,600 ÷ 18) × (18 - 7) = $2,200 Financial Accounting If the adjusting entry for depreciation is not made, expenses will be understated. An adjusting entry affects a balance sheet account and an income statement account. Buffalo Tom Cruises Insurance Expense purchased a five- 9,000 year insurance Prepaid Insurance policy for its ships on 9,000 April 1, 2015 for $60,000. Assuming that April 1 is the ($60,000 ÷ 5) × 9/12 = $9,000 effective date of the policy, the adjusting entry on December 31, 2015 is Financial Accounting Which of the D is correct following statements is correct? A. The revenue recognition principle dictates that revenue should be recognized in the accounting records in the period that income taxes are paid. B. If an adjusting entry is not made for an accrued expense, net income will be understated. C. The adjusted trial balance is prepared after financial statements are prepared. D. If an adjusting entry is not made for an accrued revenue, Financial Accounting E. The adjusted trial balance is prepared before all transactions have been journalized. Income Summary debit Income Summary $17,000, has a credit balance credit Retained Earnings $17,000. of $17,000 in S. Sufjan Co. after closing revenues and expenses. The entry to close Income Summary is Financial Accounting The income statement for the month of June, 2015 of Camera Obscura Enterprises contains the following information: $36,300. $35,000 + $1,300 = $36,300 Revenues $7,000 Expenses: Salries and Wages Expense $3,000 Rent Expense 1,500 Advertising Expense 800 Supplies Expense 300 Insurance Expense 100 Total expenses 5,700 Net income $1,300 At June 1, 2015, Camera Obscura reported retained earnings of $35,000. Financial Accounting Financial Accounting The income statement for the year 2015 of Fugazi Co. contains the following information: a credit to Income Summary for $7,500. Revenues $70,000 Expenses: Salaries and Wages Expense $45,000 Rent Expense 12,000 Advertising Expense 10,000 Supplies Expense 6,000 Utilities Expense 2,500 Insurance Expense 2,000 Total expenses 77,500 Net income (loss) $ (7,500) The entry to close Financial Accounting Retained Earnings includes The income statement for the month of June, 2015 of Camera Obscura Enterprises contains the following information: credit to Income Summary for $7,000. Revenues $7,000 Expenses: Salaries and Wages Expense $3,000 Rent Expense 1,500 Advertising Expense 800 Supplies Expense 300 Insurance Expense 100 Total expenses 5,700 Net income $1,300 The entry to close the revenue account includes a Financial Accounting Jawbreaker Accounts Receivable 490 Company paid $940 Accounts Payable 940 on account to a Cash 1,430 creditor. The transaction was $940 + $490 = $1,430 erroneously recorded as a debit to Cash of $490 and a credit to Accounts Receivable, $490. The correcting entry is An error has the balance sheet accounts have occurred in the zero balances. closing entry process if Financial Accounting The income statement and balance sheet columns of Iron and Wine Company's worksheet reflect the following totals: Income Statement Balance Sheet Dr. Cr. Dr. Cr. Totals $72,000 $44,000 $60,000 $88,000 The net income (or loss) for the period is $28,000 loss. Financial Accounting The income statement for the year 2015 of Fugazi Co. contains the following information: $32,500. $50,000 - $10,000 - $7,500 = $32,500 Revenues $70,000 Expenses: Salaries and Wages Expense $45,000 Rent Expense 12,000 Advertising Expense 10,000 Supplies Expense 6,000 Utilities Expense 2,500 Insurance Expense 2,000 Total expenses 77,500 Net income (loss) $ (7,500) At January 1, 2015, Financial Accounting Financial Accounting The following information is for Bright Eyes Auto Supplies: $180,000. $130,000 + $50,000 = $180,000 Bright Eyes Auto Supplies Balance Sheet December 31, 2015 Cash $ 40,000 Accounts Payable $ 130,000 Prepaid Insurance 80,000 Salaries and Wages Payable 50,000 Accounts Receivable 100,000 Mortgage Payable 150,000 Inventory 140,000 Total Liabilities 330,000 Land Held for Investment 180,000 Land 250,000 Financial Accounting Financial Accounting The following items are taken from the financial statements of the Postal Service for the year ending December 31, 2015: $88,000 $18,000 + $70,000 = $88,000 Accounts payable $ 18,000 Accounts receivable 11,000 Accumulated depreciation - equipment 28,000 Advertising expense 21,000 Cash 15,000 Common stock 42,000 Dividends 14,000 Depreciation expense 12,000 Insurance expense 3,000 Note payable, due Financial Accounting (12-month policy) 6,000 Rent expense 17,000 Retained earnings (1/1/15) 60,000 Salaries and wages expense 32,000 Service revenue 133,000 Supplies 4,000 Supplies expense 6,000 Equipment 210,000 What are total current liabilities at December 31, 2015? Which of the following statements is correct? If Income Summary has a credit balance after revenues and expenses have been closed into it, the closing entry for Income Summary will include a credit to the retained earnings account. Financial Accounting The following information is for Sunny Day Real Estate: $175,000. $25,000 + $30,000 + $50,000 + $70,000 = $175,000 Sunny Day Real Estate Balance Sheet December 31, 2015 Cash $ 25,000 Accounts Payable $ 60,000 Prepaid Insurance 30,000 Salaries and Wages Payable 15,000 Accounts Receivable 50,000 Mortgage Payable 85,000 Inventory 70,000 Total Liabilities 160,000 Land Held for Investment 85,000 Land 120,000 Financial Accounting Financial Accounting The income statement for the month of June, 2015 of Camera Obscura Enterprises contains the following information: a credit balance of $1,300. $7,000 - $5,700 = $1,300 Revenues $7,000 Expenses: Salaries and Wages Expense $3,000 Rent Expense 1,500 Advertising Expense 800 Supplies Expense 300 Insurance Expense 100 Total expenses 5,700 Net income $1,300 After the revenue and expense accounts have been closed, the balance Financial Accounting Financial Accounting The income statement for the year 2015 of Fugazi Co. contains the following information: a debit balance of $7,500. Revenues $70,000 Expenses: Salaries and Wages Expense $45,000 Rent Expense 12,000 Advertising Expense 10,000 Supplies Expense 6,000 Utilities Expense 2,500 Insurance Expense 2,000 Total expenses 77,500 Net income (loss) $ (7,500) After the revenue Financial Accounting closed, the balance in Income Summary will be The balance in the income Which of the summary account before it is following statements closed will be equal to the net is correct? income or loss on the income statement. Financial Accounting The income statement for the month of June, 2015 of Camera Obscura Enterprises contains the following information: Revenues $7,000 Expenses: Salaries and Wages Expense $3,000 Rent Expense credit to Rent Expense for $1,500. Financial Accounting Advertising Expense 800 Supplies Expense 100 Insurance Expense Total expenses 5,700 Net income $1,300 Financial Accounting accounts includes a Financial Accounting The following information is for Sunny Day Real Estate: Sunny Day Real Estate Balance Sheet December 31, 2015 Cash $ 25,000 Accounts Payable $ 60,000 Prepaid Insurance 30,000 Salaries and Wages Payable $200,000. $120,000 + $80,000 = $200,000 15,000 Financial Accounting 50,000 Mortgage Payable 85,000 Inventory 70,000 Total Liabilities 160,000 Land Held for Investment 85,000 Land 120,000 Financial Accounting Buildings $100,000 Common Stock $120,000 Less Accumulated Retained Earnings 250,000 370,000 Depreciation (20,000) 80,000 Financial Accounting 70,000 Total Assets $530,000 Total Liabilities and Stockholders' Equity $530,000 The total dollar amount of assets to be classified as property, plant, and equipment is Financial Accounting Zen Arcade paid the weekly payroll on January 2 by debiting Salaries and Wages Expense for $47,000. The accountant preparing the payroll entry overlooked the fact that Salaries and Wages Expense of $27,000 had been accrued at year end on December 31. The correcting entry is Salaries and Wages Payable 27,000 Salaries and Wages Expense 27,000 Financial Accounting These are selected account balances on December 31, 2015. Land (location of the office building) $100,000 Land (held for future use) 150,000 Office Building 700,000 Inventory 200,000 Equipment 450,000 Office Furniture $975,000 $100,000 + $700,000 + $450,000 + $150,000 - $425,000 = $975,000 150,000 Accumulated Depreciation Financial Accounting Financial Accounting The following items are taken from the financial statements of the Postal Service for the year ending December 31, 2015: Accounts payable $ 18,000 Accounts receivable 11,000 Accumulated depreciation - equipment 28,000 Advertising expense 21,000 Cash 15,000 Common stock 42,000 Dividends 14,000 Depreciation expense 12,000 $36,000 $11,000 + $15,000 + $6,000 + $4,000 = $36,000 Financial Accounting Note payable, due 6/30/16 70,000 Prepaid insurance (12-month policy) 6,000 Rent expense 17,000 Retained earnings (1/1/15) 60,000 Salaries and wages expense 32,000 Service revenue 133,000 Supplies 4,000 Supplies expense 6,000 Equipment 210,000 What are total current assets at December 31, 2015? Financial Accounting The income statement for the year 2015 of Fugazi Co. contains the following information: Revenues $70,000 Expenses: Salaries and Wages Expense $45,000 Rent Expense debit to Revenues for $70,000. 12,000 Financial Accounting Advertising Expense 10,000 Supplies Expense 6,000 Utilities Expense 2,500 Insurance Expense 2,000 Total expenses 77,500 Net income (loss) Financial Accounting $ (7,500) The entry to close the revenue account includes a Jubilee Corp. purchased a new van for food deliveries on January 1, 2016. The van cost $75,000 with an estimated life of 5 years and $8,000 salvage value at the end of its useful life. The double-declining- balance method of depreciation will be used. What is the balance of the Accumulated Depreciation account at the end of 2017? $48,000 Depreciation 2016 = ($75,000 - 0) × .40 = $30,000; Depreciation 2017 = ($75,000 - $30,000) × .40 = $18,000 ; Accumulated Depreciation at the end of 2017 = $18,000 + $30,000 = $48,000 Financial Accounting Which of the following assets does not decline in service potential over the course of its useful life? Land A truck that cost gain of $6,000. $72,000 and on which $60,000 of $18,000 - ($72,000 - $60,000) = accumulated $6,000 depreciation has been recorded was disposed of for $18,000 cash. The entry to record this event would include a Financial Accounting Engler Company purchases a new delivery truck for $55,000. The sales taxes are $4,000. The logo of the company is painted on the side of the truck for $1,600. The truck license is $160. The truck undergoes safety testing for $290. What does Engler record as the cost of the new truck? $60,890 $55,000 + $4,000 + $1,600 + $290 = $60,890 Financial Accounting Orr Corporation sold equipment for $30,000. The equipment had an original cost of $90,000 and accumulated depreciation of $45,000. As a result of the sale, net income will decrease $15,000. $30,000 - ($90,000 - $45,000) = ($15,000) Sargent Corporation bought equipment on January 1, 2015. The equipment cost $360,000 and had an expected salvage value of $60,000. The life of the equipment was estimated to be 6 years. The depreciation expense using the straight-line method $50,000. ($360,000 - $60,000) ÷ 6 = $50,000 Financial Accounting A company sells a $96,000 loss on disposal. plant asset which originally cost $120,000 - ($360,000 - $360,000 for $144,000) = ($96,000) $120,000 on December 31, 2015. The Accumulated Depreciation account had a balance of $144,000 after the current year's depreciation of $36,000 had been recorded. The company should recognize a If a plant asset is a loss on disposal occurs retired before it is fully depreciated and no salvage value is received, Financial Accounting Wesley Hospital installs a new parking lot. The paving cost $40,000 and the lights to illuminate the new parking area cost $25,000. Which of the following statements is true with respect to these additions? $65,000 should be debited to Land Improvements. $40,000 + $25,000 = $65,000 Financial Accounting Eckman Company purchased equipment for $120,000 on January 1, 2014, and will use the double- declining-balance method of depreciation. It is estimated that the equipment will have a 5-year life and a $6,000 salvage value at the end of its useful life. The amount of depreciation expense recognized in the year 2016 will be $17,280 ($120,000 - $0) × .40 = $48,000; ($120,000 - $48,000) × .40 = $28,800; ($120,000 - $76,800) × .40 = $17,280 Financial Accounting Tomko Company purchased machinery with a list price of $96,000. They were given a 10% discount by the manufacturer. They paid $600 for shipping and sales tax of $4,500. Tomko estimates that the machinery will have a useful life of 10 years and a residual value of $30,000. If Tomko uses straight- line depreciation, annual depreciation will be $6,150. ($96,000 × .90) + $600 + $4,500 - $30,000] ÷ 10 = $6,150 Financial Accounting Mather Company purchased equipment on January 1, 2015 at a total invoice cost of $336,000; additional costs of $6,000 for freight and $30,000 for installation were incurred. The equipment has an estimated salvage value of $12,000 and an estimated useful life of five years. The amount of accumulated depreciation at December 31, 2016 if the straight-line method of depreciation is used is: 144,000 Solution: ($336,000 + $6,000 + $30,000 - $12,000) ¸ 5] = $72,000; $72,000 × 2 = $144,000 Financial Accounting Equipment was purchased for $85,000 on January 1, 2015. Freight charges amounted to $3,500 and there was a cost of $10,000 for building a foundation and installing the equipment. It is estimated that the equipment will have a $15,000 salvage value at the end of its 5-year useful life. What is the amount of accumulated depreciation at December 31, 2016, if the straight-line method of depreciation is used? $33,400 $85,000 + $3,500 + $10,000 = $98,500; [($98,500 - $15,000) ÷ 5] × 2 = $33,400 Financial Accounting A factory machine was purchased for $375,000 on January 1, 2015. It was estimated that it would have a $75,000 salvage value at the end of its 5-year useful life. It was also estimated that the machine would be run 40,000 hours in the 5 years. The company ran the machine for 4,000 actual hours in 2015. If the company uses the units-of-activity method of depreciation, the amount of depreciation expense for 2015 would be $30,000. [($375,000 - $75,000) ÷ 40,000] × 4,000 = $30,000 [Show Less]