The following accounts appear in an adjusted trial balance of Kangaroo Consulting. Indicate whether each account would be reported

The following accounts appear in an adjusted trial balance of Kangaroo Consulting. Indicate whether each account would be reported in the (a) current asset; (b) property, plant, and equipment; (c) current liability; (d) long-term liability; or (e) owner’s equity section of the December 31, 2018, balance sheet of Kangaroo Consulting.

1. Accounts Payable

2. Accounts Receivable

3. Accumulated Depreciation—Building

4. Cash

5. Lea Gabel, Capital

6. Note Payable (due in ten years)

7. Supplies

8. Wages Payable

Answer:

1. Current liability (c)

2. Current asset (a)

3. Property, plant, and equipment (b)

4. Current asset (a)

5. Owner’s equity (e)

6. Long-term liability (d)

7. Current asset (a)

8. Current liability (c)

The balance in the equipment account is $3,150,000, and the balance in the accumulated depreciation—equipment account is $2,075,000.

The balance in the equipment account is $3,150,000, and the balance in the accumulated depreciation—equipment account is $2,075,000.

a. What is the book value of the equipment?

b.  Does the balance in the accumulated depreciation account mean that the equipment’s loss of value is $2,075,000? Explain.

Answers:

a. $1,075,000 ($3,150,000 – $2,075,000)

b. No. Depreciation is an allocation of the cost of the equipment to the periods benefiting from its use. It does not necessarily relate to value or loss of value.

In a recent balance sheet, Microsoft Corporation reported Property, Plant, and Equipment of $27,804 million and Accumulated Depreciation of $14,793 million.

In a recent balance sheet, Microsoft Corporation reported Property, Plant, and Equipment of $27,804 million and Accumulated Depreciation of $14,793 million.

a. What was the book value of the fixed assets?

b.  Would the book value of Microsoft’s fixed assets normally approximate their market values?

Answers:

a. $13,011 million ($27,804 – $14,793)

b. No. Depreciation is an allocation method, not a valuation method. That is, depreciation allocates the cost of a fixed asset over its useful life. Depreciation does not attempt to measure market values, which may vary significantly from year to year.