Hill has a fiscal year-end of December 31. In February, Hill purchased a piece of equipment for $12,000 with a four-year useful life and a zero residual value. Hill used the equipment to produce finished goods in March that were sold on credit in April with cash collected in May. Hill uses straight-line depreciation. The amount of depreciation expense affecting the reported income on the first quarter income statement was$0$700$500$250

Depreciation under straight-line method = (cost - residual value)/useful life = ($12,000 -0)4 years = $3000 per annum As per IFRS on interim financial reporting depreciation is to be provided to each quarter in same proportion as provided on annual basis. Machine purchased in February. Quarter = January to March Therefore depreciation is to be provided for February and March =$3000×2months/12months =$500 The amount of depreciation expense affecting the reported income on the first quarter income statement was $500 Thus correct answer is 3rd option

Answered: Hill has a fiscal year-end of December…

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

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Problem 1Q

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Hill has a fiscal year-end of December 31. In February, Hill purchased a piece of equipment for $12,000 with a four-year useful life and a zero residual value. Hill used the equipment to produce finished goods in March that were sold on credit in April with cash collected in May. Hill uses straight-line depreciation. The amount of depreciation expense affecting the reported income on the first quarter income statement was

$0

$700

$500

$250

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