Question

For the current year, Stone Company records $10,000 of depreciation on a piece of equipment. Which of the following statements is correct?

The equipment has gone down in market value by $10,000 during the year.
By recording depreciation, the company is matching the cost of using the equipment with the revenues the equipment generated.
The company is setting aside $10,000 of funds to be used to replace the equipment at the end of its useful life.
The company is following the lower of cost or market rule.

Answer 1

THE CORRECT ANSWER FOR THIS QUESTION IS BY RECORDING DEPRECIATION , THE COMPANY IS MATCHING THE COST OF USING THE EQUIPMENT WITH THE REVENUES THE EQUIPMENT GENERATED.

Step-by-step explanation:

THE PURPOSE OF DEPRECIATION IS TO MATCH THE COST OF THE ASSET TO REVENUE DERIVED FROM USING THE ASSET OR TO THE PERIOD BENEFITING FROM ASSET.

THE AMOUNT NOT YET DEPRECIATED OR NET YET MATCHED TO REVENUE DOESN'T INDICATED THE CURRENT VALUE OF ASSET.

NOTE: THE MATCHING PRINCIPLE IS APPLIED TO RECORD THE REVENUE AND EXPENSE RELATED TO THAT IN SAME REPORTING PERIOD.