On January 1,2010,Rusu Company purchased an asset that had cost $26,000.The asset had a 6-year useful life and an estimated salvage value of $2,000.Rusu depreciates its assets on the straight-line basis.On January 1,2012 the company spent $12,000 to improve the quality of the asset.Based on this information the recognition of depreciation expense in 2012 would act to:
A) increase total assets by $7,000.
B) reduce total equity by $7,000.
C) reduce total assets by $12,000.
D) increase total equity by $10,000.

Question

Quizplus · Accepted Answer

The depreciation expense reduces net income, which in turn reduces retained earnings, a component of equity. The improvement cost is added to the asset's book value and depreciated over the remaining useful life.

On January 1,2010,Rusu Company Purchased an Asset That Had Cost