Accounting Made Simple 20

Question 1

1. What if you plan to use an asset for a number of years, and then sell it before it becomes entirely worthless?

Answer 1

In these cases, you use what is called SALVAGE VALUE.

Question 2

2. What is SALVAGE VALUE?

Answer 2

It is the value that the asset is expected to have after the planned number of years of use. Also known as RESIDUAL VALUE.

Question 3

3. Checklist Construction spends 11k on office furniture, which they plan to use for the next 10 years, after which it will have a value of approximately 2k, The furniture’s ORIGINAL COST, MINUS ITS EXPECTED SALVAGE VALUE, is know as:

Answer 3

its DEPRECIABLE COST, in this case: 9k

Question 4

4. How is DEPRECIATION for the furniture recorded?

Answer 4

Each year, the following entry is made:

Depreciation Expense…..900
Accumulated Depreciation…..900

Question 5

5. After 10 years, ACCUMULATED DEPRECIATION on the furniture will have a 9k CREDIT BALANCE. At that point the furniture is sold for 2k, and the following entry is made;

Answer 5

Cash………………..2k
Accum. Depre…….9k
Office Furniture………..11k

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