Deck 17: Depreciation

Question 1

A company using the straight-line method over 10 years would be depreciating its asset at a 10% rate each year.

Answer 1

True

Question 2

Depreciation is an exact science that requires no estimation.

Answer 2

False

Question 3

In the straight-line method, book value never goes below the residual value.

Answer 3

True

Question 4

A depreciation schedule for partial years must cover at least three years.

Question 5

The straight-line method of depreciation is really an accelerated type of depreciation.

Question 6

Cost minus residual divided by number of years equals depreciation expense taken each year in the straight-line method.

Question 7

Residual value means the actual cash one receives at end of the life of the asset.

Question 8

Copyrights will depreciate.

Question 9

If a car is driven strictly for pleasure, it still can be depreciated.

Question 10

Trade-in value is the same as the residual value.

Question 11

Accumulated depreciation records the history of depreciation taken to date.

Question 12

All assets that last longer than one year will be depreciated.

Question 13

Land can be depreciated.

Question 14

MACRS is not used for tax purposes.

Question 15

In a straight-line depreciation schedule, the depreciation expense is the same each year.

Question 16

Product obsolescence means the asset has been fully depreciated.

Question 17

Depreciation expense is listed on the balance sheet.

Question 18

Book value is cost plus accumulated depreciation.

Question 19

Physical deterioration is related to an asset's estimated amount of usefulness.

Question 20

Depreciation expense results in an indirect tax savings.

Question 21

Which one is not based on the passage of time?

A) Straight-line method
B) Declining-balance method
C) Units-of-production method
D) None of these
E) All of these

Question 22

The units-of-production method is based on the passage of time.

Question 23

ACRS came before MACRS.

Question 24

A new truck costing $50,000 with a residual value of $4,000 has an estimated useful life of five years. Using the declining-balance method at twice the straight-line rate, the depreciation expense in year 2 is:

A) $20,000
B) $12,000
C) $18,000
D) $7,200
E) None of these

Question 25

Residual value is not used in calculating the depreciation expense per unit of product, miles driven, etc.

Question 26

Which one of the following does not depreciate?

A) Building
B) Land
C) Truck
D) Computer
E) None of these

Question 27

If a car is depreciated in four years, the rate of depreciation using twice the straight-line rate is:

A) 25%
B) 50%
C) 100%
D) 75%
E) None of these

Question 28

In the declining-balance method, we can depreciate below the residual value.

Question 29

Book value is:

A) Cost plus accumulated depreciation
B) Cost minus accumulated depreciation
C) Cost divided by accumulated depreciation
D) Cost times accumulated depreciation
E) None of these

Question 30

Straight-line depreciation does not:

A) Use residual to calculate yearly depreciation
B) Have a book value
C) Accelerate depreciation
D) Let the cost remain the same
E) None of these

Question 31

The Modified Accelerated Cost Recovery System must be used for both financial and tax reporting.

Question 32

Residual value is deducted in calculating depreciation expense in the declining-balance method.

Question 33

The book value in the units-of-production method should never go below the residual value.

Question 34

MACRS does not use residual value; thus, assets are depreciated to zero.

Question 35

A truck costs $16,000 with a residual value of $1,000. It has an estimated useful life of five years. If the truck was bought on July 3, what would be the book value at the end of year 1 using straight-line rate?

A) $16,000
B) $12,500
C) $14,500
D) $1,500
E) None of these

Question 36

Depreciation expense is located on the:

A) Income statement
B) Balance sheet
C) Income statement and Balance sheet
D) None of these
E) All of these

Question 37

Depreciation expense in the declining-balance method is calculated by the depreciation rate:

A) Times book value at beginning of year
B) Plus book value at end of year
C) Divided by book value at beginning of year
D) Times accumulated depreciation at year end
E) None of these

Question 38

For partial-years depreciation, if an asset is purchased on February 8, how many months' depreciation will be taken for the year?

A) 12
B) 11
C) 10
D) 9
E) None of these

Question 39

Cost recovery using MACRS is calculated by:

A) Rate divided by cost
B) Rate × cost
C) Rate + cost
D) Rate - cost
E) None of these

Question 40

Which method does not deduct residual value in calculating depreciation expense?

A) Straight-line method
B) Units-of-production method
C) Declining-balance method
D) None of these
E) All of these

Question 41

Federal Express bought material handling equipment for its hub operations that cost $180,000. Using the MACRS, what is the depreciation expense in year 3 (using a five-year class)?

A) $15,360
B) $40,000
C) $43,560
D) $34,560
E) None of these

Question 42

What is the depreciation expense for the second year (straight-line method) using the following?

A) $14,500
B) $13,500
C) $3,375
D) $3,275
E) None of these

Question 43

Using the declining-balance method, complete the table as shown (twice the straight-line rate):
Auto: $26,000 Estimated life: 10 years Residual value: $600

Question 44

Karen Knoll Co. bought a machine that cost $8,000. The residual value is $1,000, and the machine life is estimated at four years. Can you prepare a depreciation schedule assuming twice the straight-line rate? Karen uses the declining-balance method.

Question 45

Apple Co. bought a car with an estimated life of five years for $12,000. The residual value of the car is $2,000. What will be the amount of depreciation expense each year using the straight-line method? If the car was bought on April 3, what would be the depreciation for the first year?

Question 46

Martha Run buys a new duplicating machine for $20,000 with a residual value of $2,000. Its estimated life is five years. Calculate the book value at the end of year 1, assuming twice the straight-line rate.

Question 47

Roche Biotech provides company cars for its salespeople that cost an average of $25,000. Using the class recovery system of five years, what is the depreciation expense in year 2 of the MACRS?

A) $8,000
B) $25,000
C) $17,000
D) $5,000
E) None of these

Question 48

A new truck costing $60,000 with a residual value of $6,000 has an estimated useful life of five years. Using the declining-balance method at twice the straight-line rate, the depreciation expense in year 2 is:

A) $24,000
B) $14,000
C) $14,400
D) $2,400
E) None of these

Question 49

A truck costs $9,200 with a residual value of $1,000. It is estimated that the useful life of the truck is four years. The amount of depreciation expense in year 2 using the declining-balance method at twice the straight-line rate is:

A) $2,300
B) $4,600
C) $3,200
D) $6,400
E) None of these

Question 50

Using the declining-balance method, complete the table as shown (twice the straight-line rate):
Auto: $30,000
Estimated life: 5 years
Residual value: $800

Question 51

Using the straight-line method, what is the depreciation expense for a computer that cost $4,500, has a residual value of $700, and has a life of four years?

A) $1,125
B) $950
C) $1,300
D) $1,950
E) None of these

Question 52

Bob bought a new delivery truck for his drug store for $30,000. The residual value is $3,000 with an expected life of five years. Assuming twice the straight-line rate, calculate the book value at the end of year 2 for the declining-balance method.

Question 53

A truck costs $8,000 with a residual value of $1,000. The truck is expected to have a useful life of 70,000 miles. Assuming the truck is driven 15,000 miles the first year, the depreciation expense would be:

A) $1,714
B) $1,500
C) $1,174
D) $1,505
E) None of these

Question 54

A new piece of equipment costs $18,000 with a residual value of $600 and an estimated useful life of five years. Assuming twice the straight-line rate, the book value at the end of year 2 using the declining-balance method is:

A) $7,200
B) $6,480
C) $11,520
D) $18,000
E) None of these

Question 55

Jay Corp. bought a machine for $15,000. The machine is expected to produce 10,000 units. The machine has a residual value of $5,000. Assuming the machine produces 400 units during year 1, what should the depreciation expense be?

Question 56

A truck costs $35,000 with a residual value of $2,000. Its service life is five years. Using the declining-balance method at twice the straight-line rate, the book value at the end of year 2 is:

A) $35,000
B) $22,000
C) $12,600
D) $33,000
E) None of these

Question 57

Young Corporation bought a car with an estimated life of five years for $25,000. The residual value of the car is $5,000. After three years, the car was sold for $11,000. What was the difference between book value and selling price if Young used the straight-line method of depreciation?

Question 58

What is the depreciation expense for the first year straight-line method using the following?

A) $4,400
B) $5,200
C) $4,000
D) $6,000
E) None of these