Table of contents

1. Introduction to Accounting1h 21m
2. Transaction Analysis1h 13m
3. Accrual Accounting Concepts2h 38m
4. Merchandising Operations2h 30m
5. Inventory1h 55m
6. Internal Controls and Reporting Cash1h 16m
7. Receivables and Investments3h 8m
8. Long Lived Assets5h 1m
9. Current Liabilities2h 19m
10. Time Value of Money1h 23m
- Time Value of Money Equations
  35m
- Using Time Value of Money Tables
  47m
11. Long Term Liabilities2h 45m
12. Stockholders' Equity2h 15m
13. Statement of Cash Flows2h 24m
14. Financial Statement Analysis5h 25m
15. GAAP vs IFRS56m

7. Receivables and Investments

Introduction to Investments in Securities

Financial Accounting

7. Receivables and Investments

Introduction to Investments in Securities

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Multiple Choice

A company bought a computer for $1,500. Three years later, the company decides to sell the computer. Under the cost method of accounting for investments in securities, at what amount should the computer be reported on the balance sheet immediately before the sale, assuming straight-line depreciation over 5 years and no residual value?

$300

$900

$1,500

$600

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Verified step by step guidance

Step 1: Understand the concept of straight-line depreciation. Straight-line depreciation is a method where the asset's cost is evenly spread over its useful life. The formula for annual depreciation expense is: $ \text{Annual Depreciation Expense} = \frac{\text{Cost of Asset} - \text{Residual Value}}{\text{Useful Life}} $.

Step 2: Identify the given values from the problem. The cost of the computer is $1,500, the residual value is $0, and the useful life is 5 years. These values will be used to calculate the annual depreciation expense.

Step 3: Calculate the annual depreciation expense using the formula: $ \text{Annual Depreciation Expense} = \frac{1500 - 0}{5} $. This will give the amount of depreciation allocated each year.

Step 4: Determine the total depreciation for 3 years. Multiply the annual depreciation expense by 3 (since the computer has been used for 3 years): $ \text{Total Depreciation} = \text{Annual Depreciation Expense} \times 3 $.

Step 5: Calculate the book value of the computer immediately before the sale. Subtract the total depreciation from the original cost of the computer: $ \text{Book Value} = \text{Cost of Asset} - \text{Total Depreciation} $. This is the amount that should be reported on the balance sheet.