On January 1, 20X9, Planet Corporation sold equipment for $400,000 to Star Corporation, its wholly owned subsidiary. Planet had paid $900,000 for this equipment, which had accumulated depreciation of $170,000. Planet estimated a $50,000 salvage value and depreciated the tractor using the straight-line method over 10 years, a policy that Star continued. In Planet's December 31, 20X9, consolidated balance sheet, this tractor should be included in fixed-asset cost and accumulated depreciation as:
On January 1, 20X9, Planet Corporation sold equipment for $400,000 to Star Corporation, its wholly owned subsidiary. Planet had paid $900,000 for this equipment, which had accumulated depreciation of $170,000. Planet estimated a $50,000 salvage value and depreciated the tractor using the straight-line method over 10 years, a policy that Star continued. In Planet's December 31, 20X9, consolidated balance sheet, this tractor should be included in fixed-asset cost and accumulated depreciation as:
Chapter1: Financial Statements And Business Decisions
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Depreciation Methods
The word "depreciation" is defined as an accounting method wherein the cost of tangible assets is spread over its useful life and it usually denotes how much of the assets value has been used up. The depreciation is usually considered as an operating expense. The main reason behind depreciation includes wear and tear of the assets, obsolescence etc.
Depreciation Accounting
In terms of accounting, with the passage of time the value of a fixed asset (like machinery, plants, furniture etc.) goes down over a specific period of time is known as depreciation. Now, the question comes in your mind, why the value of the fixed asset reduces over time.
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On January 1, 20X9, Planet Corporation sold equipment for $400,000 to Star Corporation, its wholly owned subsidiary. Planet had paid $900,000 for this equipment, which had
accumulated depreciation of $170,000. Planet estimated a $50,000 salvage value anddepreciated the tractor using the straight-line method over 10 years, a policy that Star continued. In Planet's December 31, 20X9, consolidatedbalance sheet , this tractor should be included in fixed-asset cost and accumulated depreciation as:
Cost Accumulated
DepreciationA. $ 900,000 $ 255,000 B. $ 900,000 $ 120,000 C. $ 730,000 $ 85,000 D. $ 730,000 $ 170,000 Option AOption BOption COption D
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