Deck 14: Depreciation

Question 1

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

Answer 1

False

Question 2

Copyrights will depreciate.

Answer 2

False

Question 3

Accumulated depreciation records the history of depreciation taken to date.

Answer 3

True

Question 4

Book value is cost plus accumulated depreciation.

Question 5

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

Question 6

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

Question 7

MACRS is not used for tax purposes.

Question 8

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

Question 9

Depreciation expense results in an indirect tax savings.

Question 10

Depreciation is an exact science that requires no estimation.

Question 11

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

Question 12

Depreciation expense is listed on the balance sheet.

Question 13

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

Question 14

Land can be depreciated.
Land cannot be depreciated.

Question 15

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

Question 16

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

Question 17

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

Question 18

Product obsolescence means the asset has been fully depreciated.

Question 19

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

Question 20

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

Question 21

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 22

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

Question 23

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

Question 24

Which one of the following does not depreciate?

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

Question 25

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 26

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 27

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 28

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

Question 29

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

Question 30

ACRS came before MACRS.

Question 31

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 32

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 33

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 34

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

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

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

Question 37

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 38

Depreciation expense is located on the:

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

Question 39

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 40

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

Question 41

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 42

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 43

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 44

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 45

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 46

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 47

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 48

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 49

Joe Wong, owner of Cookie Palace, is discussing with his accountant which method of depreciation would be best for his new delivery truck. The cost of the truck is $20,000 with an estimated life of four years. The residual value of the truck is $2,500. Prepare a depreciation schedule using the declining-balance method at twice the straight-line rate.

Question 50

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.