{"id":195256,"date":"2025-02-28T05:34:57","date_gmt":"2025-02-28T05:34:57","guid":{"rendered":"https:\/\/learnexams.com\/blog\/?p=195256"},"modified":"2025-02-28T05:35:07","modified_gmt":"2025-02-28T05:35:07","slug":"klingon-widgets-inc-purchased-new-cloaking-machinery-three-years-ago-for-4-million","status":"publish","type":"post","link":"https:\/\/www.learnexams.com\/blog\/2025\/02\/28\/klingon-widgets-inc-purchased-new-cloaking-machinery-three-years-ago-for-4-million\/","title":{"rendered":"Klingon Widgets, Inc., purchased new cloaking machinery three years ago for $4 million"},"content":{"rendered":"\n

Klingon Widgets, Inc., purchased new cloaking machinery three years ago for $4 million. The machinery can be sold to the Romulans today for $6.2 million. Klingon\u2019s current balance sheet shows net fixed assets of $2.8 million, current liabilities of $710,000, and net working capital of $130,000. If all the current assets were liquidated today, the company would receive $825,000 cash.<\/p>\n\n\n\n

What is the book value of klingons assets today ?<\/p>\n\n\n\n

What is the Market Value ?<\/p>\n\n\n\n

My question is about the inital purchase of the machine do I need to do something with that and the price they can sell it for ?<\/p>\n\n\n\n

The Correct Answer and Explanation is :<\/strong><\/mark><\/p>\n\n\n\n

Solution:<\/strong><\/h3>\n\n\n\n

1. Book Value of Klingon\u2019s Assets Today<\/strong><\/h4>\n\n\n\n

The book value of assets is determined by the accounting records and represents historical costs minus depreciation.<\/p>\n\n\n\n

    \n
  • Net Fixed Assets (Book Value) = $2.8 million<\/li>\n\n\n\n
  • Net Working Capital (NWC) = Current Assets – Current Liabilities<\/li>\n\n\n\n
  • Given NWC = $130,000<\/li>\n\n\n\n
  • Current Liabilities = $710,000<\/li>\n\n\n\n
  • So, Current Assets = NWC + Current Liabilities
    = $130,000 + $710,000
    = $840,000<\/strong><\/li>\n<\/ul>\n\n\n\n

    Thus, the Book Value of Klingon\u2019s Assets<\/strong> = Net Fixed Assets + Current Assets
    = $2.8 million + $840,000<\/strong>
    = $3.64 million<\/strong><\/p>\n\n\n\n

    2. Market Value of Klingon\u2019s Assets Today<\/strong><\/h4>\n\n\n\n

    The market value considers what the company can get if it liquidates its assets today.<\/p>\n\n\n\n

      \n
    • Market Value of Machinery = $6.2 million (potential selling price)<\/li>\n\n\n\n
    • Liquidation Value of Current Assets = $825,000 (instead of book value $840,000)<\/li>\n\n\n\n
    • Total Market Value = Market Value of Fixed Assets + Market Value of Current Assets
      = $6.2 million + $825,000<\/strong>
      = $7.025 million<\/strong><\/li>\n<\/ul>\n\n\n\n

      Key Explanation:<\/strong><\/h4>\n\n\n\n

      You do not need to adjust for the initial purchase price of the machinery ($4 million) because the book value already accounts for depreciation. However, the market value of the machine is what it can be sold for today ($6.2 million), which is higher than the book value ($2.8 million). The market value reflects the real worth today, while the book value is just an accounting measure.<\/p>\n\n\n\n

      Thus, the book value of Klingon Widgets’ assets is $3.64 million<\/strong>, while the market value is $7.025 million<\/strong>.<\/p>\n\n\n\n

      \"\"<\/figure>\n\n\n\n

      Here is your generated image of a futuristic Klingon-style industrial facility with advanced cloaking machinery and an alien technology aesthetic. Let me know if you need any modifications!<\/p>\n","protected":false},"excerpt":{"rendered":"

      Klingon Widgets, Inc., purchased new cloaking machinery three years ago for $4 million. The machinery can be sold to the Romulans today for $6.2 million. Klingon\u2019s current balance sheet shows net fixed assets of $2.8 million, current liabilities of $710,000, and net working capital of $130,000. If all the current assets were liquidated today, the […]<\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"site-sidebar-layout":"default","site-content-layout":"","ast-site-content-layout":"default","site-content-style":"default","site-sidebar-style":"default","ast-global-header-display":"","ast-banner-title-visibility":"","ast-main-header-display":"","ast-hfb-above-header-display":"","ast-hfb-below-header-display":"","ast-hfb-mobile-header-display":"","site-post-title":"","ast-breadcrumbs-content":"","ast-featured-img":"","footer-sml-layout":"","ast-disable-related-posts":"","theme-transparent-header-meta":"","adv-header-id-meta":"","stick-header-meta":"","header-above-stick-meta":"","header-main-stick-meta":"","header-below-stick-meta":"","astra-migrate-meta-layouts":"default","ast-page-background-enabled":"default","ast-page-background-meta":{"desktop":{"background-color":"","background-image":"","background-repeat":"repeat","background-position":"center center","background-size":"auto","background-attachment":"scroll","background-type":"","background-media":"","overlay-type":"","overlay-color":"","overlay-opacity":"","overlay-gradient":""},"tablet":{"background-color":"","background-image":"","background-repeat":"repeat","background-position":"center center","background-size":"auto","background-attachment":"scroll","background-type":"","background-media":"","overlay-type":"","overlay-color":"","overlay-opacity":"","overlay-gradient":""},"mobile":{"background-color":"","background-image":"","background-repeat":"repeat","background-position":"center center","background-size":"auto","background-attachment":"scroll","background-type":"","background-media":"","overlay-type":"","overlay-color":"","overlay-opacity":"","overlay-gradient":""}},"ast-content-background-meta":{"desktop":{"background-color":"var(--ast-global-color-5)","background-image":"","background-repeat":"repeat","background-position":"center center","background-size":"auto","background-attachment":"scroll","background-type":"","background-media":"","overlay-type":"","overlay-color":"","overlay-opacity":"","overlay-gradient":""},"tablet":{"background-color":"var(--ast-global-color-5)","background-image":"","background-repeat":"repeat","background-position":"center center","background-size":"auto","background-attachment":"scroll","background-type":"","background-media":"","overlay-type":"","overlay-color":"","overlay-opacity":"","overlay-gradient":""},"mobile":{"background-color":"var(--ast-global-color-5)","background-image":"","background-repeat":"repeat","background-position":"center center","background-size":"auto","background-attachment":"scroll","background-type":"","background-media":"","overlay-type":"","overlay-color":"","overlay-opacity":"","overlay-gradient":""}},"footnotes":""},"categories":[25],"tags":[],"class_list":["post-195256","post","type-post","status-publish","format-standard","hentry","category-exams-certification"],"_links":{"self":[{"href":"https:\/\/www.learnexams.com\/blog\/wp-json\/wp\/v2\/posts\/195256","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.learnexams.com\/blog\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.learnexams.com\/blog\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.learnexams.com\/blog\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/www.learnexams.com\/blog\/wp-json\/wp\/v2\/comments?post=195256"}],"version-history":[{"count":0,"href":"https:\/\/www.learnexams.com\/blog\/wp-json\/wp\/v2\/posts\/195256\/revisions"}],"wp:attachment":[{"href":"https:\/\/www.learnexams.com\/blog\/wp-json\/wp\/v2\/media?parent=195256"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.learnexams.com\/blog\/wp-json\/wp\/v2\/categories?post=195256"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.learnexams.com\/blog\/wp-json\/wp\/v2\/tags?post=195256"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}