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A bakery bought equipment for $56,000 and has taken a total of $16,000 in depreciation on it. What amount does that equipment contribute to total fixed assets?
A$56,000
B$40,000
C$16,000
D$72,000
Answer & Solution
Correct answer: B. $40,000
1. Fixed assets are carried at original cost less the depreciation accumulated against them.
2. The original cost of the bakery equipment is $56,000.
3. Accumulated depreciation taken on it is $16,000.
4. Subtract: $56,000 minus $16,000 equals $40,000.
5. So $40,000 is the amount carried into total fixed assets.
6. Answering $56,000 ignores the depreciation altogether, and answering $16,000 reports the depreciation instead of the asset.
7. Answering $72,000 adds the depreciation rather than subtracting it, which would make the asset grow as it wears out.
_Source: OpenStax Introduction to Business (CC BY 4.0), Ch 14 "Using Financial Information and Accounting", section 14.4 The Balance Sheet_
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