CFA Practice Question

There are 520 practice questions for this study session.

CFA Practice Question

Nepster Inc. provides the following information from its accrual-basis financial statements:

1/1 Buildings (net): \$280,000
12/31 Buildings (net): \$300,000
Depreciation Expense: \$25,000

How much did Nepster pay for buildings during the year if buildings with a book value of \$40,000 were disposed of during the year?

A. \$45,000
B. \$65,000
C. \$85,000

The correct amount must take into account the book value of the buildings disposed of, depreciation expense, and the change in the Buildings account balance. The correct computation is the \$20,000 change in the Buildings (net) account plus the \$40,000 book value plus the \$25,000 Depreciation Expense = \$85,000

Ending Build. = Opening Build. + acquisitions - sales - depreciation expense (300,000 = 280,000 + X- 40,000-25,000)

User Comment
Jmiller74 The question is written incomplete, it does not mention the change in the book value by 20K.
John1965 Yes it is complete: the 20,000 comes from 300,000 - 280,000.
johntan1979 There is no change in book value whatsoever.

Book value of disposed asset = \$40,000

\$20,000 is Ending building - Beginning building = \$300k - \$280k
farhan92 took me a minute or so to find the book value -.-
ascruggs92 Start 280,000
Less: Depreciation Exp. (25,000)
Less: Disposal of Assets (40,000)
Buildings Acct. Balance before purchases 215,000
Purchases 85,000
Ending Balance: 300,000
cfastudypl using the fixed asset t-account: closing balance 300k + depreciation 25k + disposal value 40k less opening balance 280k = 85k(300+25+40-280)