CFA Practice Question

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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
Correct Answer: C

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 Contributed Comments 6

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)
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