Equipment cost $300,000, has no residual value, and was originally depreciated straight-line over 10 years. After four full years, its remaining useful life is revised to three years. What depreciation is recorded in year 5?
A. $30,000
B. $50,000
C. $60,000
D. $100,000
Show answer and reasoning
Correct answer: C. $60,000
Four years of depreciation total $120,000, leaving a $180,000 carrying amount. A change in useful life is applied prospectively. The remaining $180,000 is allocated over three years, producing $60,000 in year 5.
- A: $30,000 continues the obsolete original estimate instead of applying the revision prospectively.
- B: $50,000 spreads the carrying amount over an unsupported period.
- D: $100,000 divides original cost by the new three-year life and ignores depreciation already recognized.
Source: Paragraphs 83–89, recognition and allocation across periods -- https://storage.fasb.org/Concepts_Statement_5_As_Amended.pdf
Equipment costing $180,000 with accumulated depreciation of $126,000 is sold for $61,000 cash. What gain or loss is recognized?
A. $7,000 loss
B. $54,000 gain
C. $61,000 gain
D. $7,000 gain
Show answer and reasoning
Correct answer: D. $7,000 gain
The carrying amount is $180,000 − $126,000 = $54,000. Cash proceeds of $61,000 exceed carrying amount by $7,000, so the entity recognizes a $7,000 gain.
- A: A loss reverses the comparison; proceeds exceed rather than fall below carrying amount.
- B: $54,000 is the carrying amount, not the difference between proceeds and carrying amount.
- C: $61,000 is gross cash proceeds and ignores derecognition of the asset's carrying amount.
Source: Chapter 4, paragraphs E16–E22 and E81–E89, derecognition and gains -- https://storage.fasb.org/Concepts_Statement_8-Chapter_4-Elements.pdf
A lessee will make three year-end payments of $20,000. The present-value factors at commencement are 0.943, 0.890, and 0.840. Ignoring initial direct costs and incentives, what initial lease liability is recognized?
A. $53,460
B. $56,600
C. $60,000
D. $50,400
Show answer and reasoning
Correct answer: A. $53,460
The lease liability equals the present value of unpaid lease payments: $20,000 × (0.943 + 0.890 + 0.840) = $20,000 × 2.673 = $53,460.
- B: $56,600 uses an incorrect factor sum and overstates present value.
- C: $60,000 is the undiscounted payment total, not the commencement-date present value.
- D: $50,400 uses only the third factor for all three payments.
Source: ASC 842 lessee amendments applicable to Initial lease liability -- https://storage.fasb.org/ASU%202016-02_Section%20A.pdf
A finance lease liability is $90,000 at the start of the year and the effective annual rate is 6%. A $24,000 payment is made at year-end. What portion of that payment is interest?
A. $1,440
B. $5,400
C. $18,600
D. $24,000
Show answer and reasoning
Correct answer: B. $5,400
Finance-lease interest uses the effective-interest method on the opening liability. Interest is $90,000 × 6% = $5,400; the remaining $18,600 reduces principal.
- A: $1,440 applies 6% to the cash payment rather than the outstanding liability.
- C: $18,600 is the principal reduction, calculated after subtracting interest from the payment.
- D: The entire payment is not interest because part reduces the lease obligation.
Source: ASC 842 lessee amendments applicable to Finance lease interest -- https://storage.fasb.org/ASU%202016-02_Section%20A.pdf
A company begins the year with accumulated other comprehensive income of $18,000 credit. Current-year OCI is a $7,000 loss and there are no reclassifications. What ending AOCI is reported?
A. $25,000 credit
B. $11,000 credit
C. $7,000 debit
D. $11,000 debit
Show answer and reasoning
Correct answer: B. $11,000 credit
Accumulated OCI carries prior-period OCI in equity. A $7,000 current loss reduces the existing $18,000 credit balance, leaving an $11,000 credit balance.
- A: $25,000 adds the loss as though it were a gain.
- C: A $7,000 debit ignores the opening accumulated balance.
- D: The loss does not exceed the opening credit, so the ending balance remains a credit rather than an $11,000 debit.
Source: Paragraphs 42–44 and 56–62, comprehensive income and accumulation in equity -- https://storage.fasb.org/Concepts_Statement_5_As_Amended.pdf
