acy1111-ch7

acy1111-ch7 - PROBLEM 7-2A 1. Cost principle. Appreciation...

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© 2009 For Instructor Use Only 7-15 PROBLEM 7-2A 1. Cost principle. Appreciation in value does not justify recognizing a gain on the land until it is sold. Appreciation does not involve an exchange transaction. No entry is necessary. 2. Matching principle. The purchase of equipment should not be expensed immediately. Only costs which have no future benefit are recognized immediately as expenses. Reporting a lower net income is not a legiti- mate reason for expensing a piece of equipment. Therefore, the following entry is necessary: Depreciation Expense ($60,000 ÷ 5 years). .............. 12,000 Accumulated Depreciation—Equipment. ......... 12,000 3. Matching principle. Plant assets should be expensed through a rational and systematic policy. Deferring depreciation is not rational and systematic. Therefore, the following entry is necessary: Depreciation Expense . .............................................. 26,000 Accumulated Depreciation. ............................... 26,000 4. Cost principle. Recording the transaction at its estimated market value
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This note was uploaded on 02/04/2012 for the course ACCT 2111 taught by Professor Eric during the Spring '11 term at CUHK.

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acy1111-ch7 - PROBLEM 7-2A 1. Cost principle. Appreciation...

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