5-) A company borrowed $10,000 by signing a 180-day promissory note at 9%. The t
ID: 2593165 • Letter: 5
Question
5-) A company borrowed $10,000 by signing a 180-day promissory note at 9%. The total interest due on the maturity date is: (Use 360 days a year.)
A) $900
B) $75
C) $450
D) $300
E) $1,800
TURE/False
6- Revising an estimate of the useful life or salvage value of a plant asset is referred to as a change in accounting estimate and is reflected in the current, and future financial statements
7-Plant assets are defined as:
A) Tangible assets that have a useful life of more than one accounting period and are used in the operation of a business.
B) Current assets.
C) Held for sale.
D) Intangible assets used in the operations of a business that have a useful life of more than one accounting period.
E) Tangible assets used in the operation of business that have a useful life of less than one accounting period
Explanation / Answer
Amount borrowed = $10,000
Rate of interest = 9% per annum
Period = 180 days
Annual interest = 10,000 x 9% = $900
Interest per day = $900/360 days = $2.5 per day
Interest due on the maturity date = $2.5 x 180 days = $450
Revising an estimate of the useful life or salvage value of a plant asset is referred to as change in accounting estimate and reflected in current and future financial statements.
Since the revision of an estimate of the salvage value or useful life is referred to as change in accounting estimate, the prior period calculations of depreciation are not altered. The calculation of depreciation expense is however approached through a proper consideration of the revised estimates as the revision is to be reflected in the current and future financial statements.
‘Tangible assets that have a useful life of more than one accounting period and are used in the operation of the business’.
Tangible assets are the ones, which can be seen
Life of such asset extends to over number of accounting periods and hence depreciation expense is calculated to write off the huge cost of the plant of the asset throughout its useful life.
Another key consideration is that the asset should be put to the exclusive use of the business.
Other options –
Plant assets are not current assets as their useful is not confined to a short period (1 year’s time).
Plant assets are to be defined as held for sale, as they are acquired for use in the operation of the business and not as a merchandise.
Plant assets are not intangible as they can be seen.
Plant assets are not tangible assets with a useful life of less than one accounting period, as their useful life is spread over a number of years.
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