Question

The following questions dealing with property, plant, and equipment and intangible assets are adapted from questions that previously appeared on Certified Management Accountant (CMA) examinations. The CMA designation sponsored by the Institute of Management Accountants (www.imanet.org) provides members with an objective measure of knowledge and competence in the field of management accounting. Determine the response that best completes the statements or questions.

1. Pearl Corporation acquired manufacturing machinery on January 1 for $9,000. During the year, the machine produced 1,000 units, of which 600 were sold. There was no work-in-process inventory at the beginning or at the end of the year. Installation charges of $300 and delivery charges of $200 were also incurred. The machine is expected to have a useful life of five years with an estimated salvage value of $1,500. Pearl uses the straight-line depreciation method. The original cost of the machinery to be recorded in Pearl's books is
a. $9,500
b. $9,300
c. $9,200
d. $9,000

Questions 2 and 3 are based on the following information. Harper is contemplating exchanging a machine used in its operations for a similar machine on May 31. Harper will exchange machines with either Austin Corporation or Lubin Company. The data relating to the machines are presented below. Assume that the exchanges would have commercial substance.

2. If Harper exchanges its used machine and $15,000 cash for Austin's used machine, the gain that Harper should recognize from this transaction for financial reporting purposes would be
a. $0
b. $2,526
c. $15,000
d. $16,000

3. If Harper exchanges its used machine for Lubin's used machine and also receives $20,000 cash, the gain that Harper should recognize from this transaction for financial reporting purposes would be
a. $0
b. $4,000
c. $16,000
d. $25,000



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  • CreatedJuly 02, 2013
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