Deck 17: Depreciation

Question 1

Depreciation expense is listed on the balance sheet.

Answer 1

False

Question 2

Accumulated depreciation records the history of depreciation taken to date.

Answer 2

True

Question 3

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

Answer 3

False

Question 4

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

Question 5

Book value is cost plus accumulated depreciation.

Question 6

Computers will not depreciate.

Question 7

A non-luxury car will depreciate.

Question 8

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

Question 9

Depreciation is an exact science that requires no estimation.

Question 10

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

Question 11

MACRS is not used for tax purposes.

Question 12

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

Question 13

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

Question 14

Land can be depreciated.

Question 15

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

Question 16

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

Question 17

Product obsolescence means the asset has been fully depreciated.

Question 18

Depreciation expense results in an indirect tax savings.

Question 19

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

Question 20

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

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

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 23

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 24

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

Question 25

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 26

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 27

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 28

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

Question 29

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 30

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

Question 31

Which one of the following does not depreciate?

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

Question 32

ACRS came before MACRS.

Question 33

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 34

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 35

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

Question 36

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

Question 37

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 38

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

Question 39

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

Question 40

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 41

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 42

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 43

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

Question 44

Match the following terms with their definitions.

-Useful life

A)Residual value not deducted in calculation
B)Even amount of depreciation expense each year
C)Depreciation based on usage
D)Depreciation that has been built up
E)An allocation of the cost of an asset
F)Estimated life of asset
G)Cost minus accumulated depreciation
H)1 divided by number of years of expected life
I)A table showing depreciation allocation
J)Estimated value after AFIC depreciation taken
K)Result of Tax Reform Act of 1986
L)Salvage value

Question 45

Match the following terms with their definitions.

-Straight-line rate

A)Residual value not deducted in calculation
B)Even amount of depreciation expense each year
C)Depreciation based on usage
D)Depreciation that has been built up
E)An allocation of the cost of an asset
F)Estimated life of asset
G)Cost minus accumulated depreciation
H)1 divided by number of years of expected life
I)A table showing depreciation allocation
J)Estimated value after AFIC depreciation taken
K)Result of Tax Reform Act of 1986
L)Salvage value

Question 46

Match the following terms with their definitions.

-Depreciation

A)Residual value not deducted in calculation
B)Even amount of depreciation expense each year
C)Depreciation based on usage
D)Depreciation that has been built up
E)An allocation of the cost of an asset
F)Estimated life of asset
G)Cost minus accumulated depreciation
H)1 divided by number of years of expected life
I)A table showing depreciation allocation
J)Estimated value after AFIC depreciation taken
K)Result of Tax Reform Act of 1986
L)Salvage value

Question 47

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 48

What is the depreciation expense for the first year straight-line method using the following? $$\begin{array} { | l | c | } \hline \text { Cost of Car } & \$ 26,000 \\\hline \text { Residual Value } & \$ 6,000 \\\hline \text { Life } & 5 \text { years } \\\hline\end{array}$$

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

Question 49

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 50

Match the following terms with their definitions.

-Accumulated depreciation

A)Residual value not deducted in calculation
B)Even amount of depreciation expense each year
C)Depreciation based on usage
D)Depreciation that has been built up
E)An allocation of the cost of an asset
F)Estimated life of asset
G)Cost minus accumulated depreciation
H)1 divided by number of years of expected life
I)A table showing depreciation allocation
J)Estimated value after AFIC depreciation taken
K)Result of Tax Reform Act of 1986
L)Salvage value

Question 51

Match the following terms with their definitions.

-Units-of-production method

A)Residual value not deducted in calculation
B)Even amount of depreciation expense each year
C)Depreciation based on usage
D)Depreciation that has been built up
E)An allocation of the cost of an asset
F)Estimated life of asset
G)Cost minus accumulated depreciation
H)1 divided by number of years of expected life
I)A table showing depreciation allocation
J)Estimated value after AFIC depreciation taken
K)Result of Tax Reform Act of 1986
L)Salvage value

Question 52

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 53

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 54

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 55

Match the following terms with their definitions.

-Residual value

A)Residual value not deducted in calculation
B)Even amount of depreciation expense each year
C)Depreciation based on usage
D)Depreciation that has been built up
E)An allocation of the cost of an asset
F)Estimated life of asset
G)Cost minus accumulated depreciation
H)1 divided by number of years of expected life
I)A table showing depreciation allocation
J)Estimated value after AFIC depreciation taken
K)Result of Tax Reform Act of 1986
L)Salvage value

Question 56

What is the depreciation expense for the second year (straight-line method)using the following? $$\begin{array} { | l | c | } \hline \text { Cost of equipment } & \$ 14,000 \\\hline \text { Residual value } & \$ 500 \\\hline \text { Life } & 4 \text { years } \\\hline\end{array}$$

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

Question 57

Match the following terms with their definitions.

-MACRS

A)Residual value not deducted in calculation
B)Even amount of depreciation expense each year
C)Depreciation based on usage
D)Depreciation that has been built up
E)An allocation of the cost of an asset
F)Estimated life of asset
G)Cost minus accumulated depreciation
H)1 divided by number of years of expected life
I)A table showing depreciation allocation
J)Estimated value after AFIC depreciation taken
K)Result of Tax Reform Act of 1986
L)Salvage value

Question 58

Match the following terms with their definitions.

-Declining-balance method

A)Residual value not deducted in calculation
B)Even amount of depreciation expense each year
C)Depreciation based on usage
D)Depreciation that has been built up
E)An allocation of the cost of an asset
F)Estimated life of asset
G)Cost minus accumulated depreciation
H)1 divided by number of years of expected life
I)A table showing depreciation allocation
J)Estimated value after AFIC depreciation taken
K)Result of Tax Reform Act of 1986
L)Salvage value

Question 59

Match the following terms with their definitions.

-Book value

A)Residual value not deducted in calculation
B)Even amount of depreciation expense each year
C)Depreciation based on usage
D)Depreciation that has been built up
E)An allocation of the cost of an asset
F)Estimated life of asset
G)Cost minus accumulated depreciation
H)1 divided by number of years of expected life
I)A table showing depreciation allocation
J)Estimated value after AFIC depreciation taken
K)Result of Tax Reform Act of 1986
L)Salvage value

Question 60

Match the following terms with their definitions.

-Straight-line method

A)Residual value not deducted in calculation
B)Even amount of depreciation expense each year
C)Depreciation based on usage
D)Depreciation that has been built up
E)An allocation of the cost of an asset
F)Estimated life of asset
G)Cost minus accumulated depreciation
H)1 divided by number of years of expected life
I)A table showing depreciation allocation
J)Estimated value after AFIC depreciation taken
K)Result of Tax Reform Act of 1986
L)Salvage value

Question 61

Adjax bought a machine for $86,000. Its estimated life is 10 years with a residual value of $6,000. Using the straight-line method, what is the book value of the machine at the end of year 2?

Question 62

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 63

Find the Annual Recovery for Year 1.
$$\begin{array} { | l | l | l | l | l | } \hline \text { Method } & \text { Purchased } & \text { Cost } & \text { Recovery Class } & \text { Annual Recovery for Year 1 } \\\hline \text { MACRS } & \text { July } 8 & \$ 6,000 & 5 & \text { A }\\\hline\end{array}$$

Question 64

Complete:
$$\begin{array} { | l | l | l | l | l | } \hline \text { Method } & & & & \\\text { Purchased } & \text { Cost } & \text { Recovery Class } & \text { Recovery Year } & \text { Cost Recovery } \\\hline \text { MACRS July 20 } & \$ 5,000 & 7 & 6 & \text { A } \\\hline \text { MACRS Nov 5 } & \$ 11,000 & 20 & 13 & \text { B } \\\hline\end{array}$$

Question 65

Find the Annual Recovery for Year 1.
$$\begin{array} { | c | c | c | c | c | } \hline \text { Method } & \text { Purchased } & \text { Cost } & \text { Recovery Class } & \begin{array} { c } \text { Annual Recovery for } \\\text { Year 1 }\end{array} \\\hline \text { MACRS } & \text { July 15 } & \$ 21,000 & 10 & \text { A } \\\hline\end{array}$$

Question 66

Find the Annual Recovery for Year 1.
$$\begin{array} { | c | c | c | c | c | } \hline \text { Method } & \text { Purchased } & \text { Cost } & \text { Recovery Class } & \begin{array} { c } \text { Annual Recovery for } \\\text { Year } 1\end{array} \\\hline \text { MACRS } & \text { May } 3 & \$ 18,000 & 3 & \text { A } \\\hline\end{array}$$

Question 67

Match the following terms with their definitions.

-Trade-in

A)Residual value not deducted in calculation
B)Even amount of depreciation expense each year
C)Depreciation based on usage
D)Depreciation that has been built up
E)An allocation of the cost of an asset
F)Estimated life of asset
G)Cost minus accumulated depreciation
H)1 divided by number of years of expected life
I)A table showing depreciation allocation
J)Estimated value after AFIC depreciation taken
K)Result of Tax Reform Act of 1986
L)Salvage value

Question 68

Using the declining-balance method, complete the table as shown (twice the straight-line rate):
Auto: $29,000; Residual: $2,000; Estimated Life: 5 Yrs
$$\begin{array} { | c | c | c | c | c | c | c | } \hline \text { Year } & \text { Cost } & \begin{array} { c } \text { Accumulated } \\\text { Depreciation } \\\text { B.O.Y. }\end{array} & \begin{array} { c } \text { Book Value } \\\text { B.O.Y }\end{array} & \begin{array} { c } \text { Depreciation } \\\text { Expense }\end{array} & \begin{array} { c } \text { Accumulated } \\\text { Depreciation } \\\text { E.O.Y. }\end{array} & \begin{array} { c } \text { Book Value } \\\text { E.O.Y }\end{array} \\\hline 1 & \text { A } & \text { B } & \text { C } & \text { D } & \text { E } & \text { F } \\\hline 2 & \mathrm { G } & \mathrm { H } & \mathrm { I } & \mathrm { J } & \mathrm { K } & \mathrm { L } \\\hline 3 & \mathrm { M } & \mathrm { N } & \mathrm { O } & \mathrm { P } & \mathrm { Q } & \mathrm { R } \\\hline\end{array}$$

Question 69

Match the following terms with their definitions.

-Depreciation schedule

A)Residual value not deducted in calculation
B)Even amount of depreciation expense each year
C)Depreciation based on usage
D)Depreciation that has been built up
E)An allocation of the cost of an asset
F)Estimated life of asset
G)Cost minus accumulated depreciation
H)1 divided by number of years of expected life
I)A table showing depreciation allocation
J)Estimated value after AFIC depreciation taken
K)Result of Tax Reform Act of 1986
L)Salvage value

Question 70

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
$\begin{array}{|c|c|c|c|c|c|c|}\hline \text { Year } & \text { Cost } & \begin{array}{l}\text { Accumulated } \\\text { Depreciation } \\\text { B.O.Y. }\end{array} & \begin{array}{l}\text { Book Value } \\\text { B.O.Y }\end{array} & \begin{array}{l}\text { Depreciation } \\\text { Expense }\end{array} & \begin{array}{l}\text { Accumulated } \\\text { Depreciation } \\\text { E.O.Y. }\end{array} & \begin{array}{l}\text { Book Value } \\\text { E.O.Y }\end{array} \\\hline 1& \$ 30,000 & \text { A } & B & \text { C } & \text { D } & E \\\hline2 & \$ 30,000 & F & G & \mathrm{H} & \text { I } & \mathrm{J} \\\hline 3& \$ 30,000 &K & L &M& N& 0 \\\hline\end{array}$

Question 71

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

Question 72

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 73

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 74

Using the declining-balance method, complete the table as shown (twice the straight-line rate):
Auto: $26,000; Residual Value: $600; Estimated Life: 10 Yrs
$$\begin{array} { | l | l | l | l | l | l | l | } \hline & & \text { Accumulated } & & & \text { Accumulated } & \\& & \text { Depreciation } & \text { Book Value } & \text { Depreciation } & \text { Depreciation } & \text { Book Value } \\ \text { Year } & \text { Cost } & \text { B.O.Y. } & \text { B.O.Y } & \text { Expense } & \text { E.O.Y. } & \text { E.O.Y } \\\hline 1 & \text { A } & \text { B } & \text { C } & \text { D } & \text { E } & \text { F } \\\hline 2 & \text { G } & \text { H } & \text { I } & \text { J } & \text { K } & \text { L } \\\hline 3 & \text { M } & \text { N } & \text { O } & \text { P } & \text { Q } & \text { R } \\\hline\end{array}$$

Question 75

Complete the following (use the straight-line method):
Auto: $40,000; Residual: $4,000; Estimated Life: 5 Yrs
$$\begin{array} { | c | c | c | c | c | } \hline \text { Year } & \text { Cost } & \begin{array} { c } \text { Depreciation } \\\text { Expense }\end{array} & \begin{array} { c } \text { Accumulated } \\\text { Depreciation }\end{array} & \text { Book Value } \\\hline 1 & \mathrm {~A} & \mathrm {~B} & \mathrm { C } & \mathrm { D } \\\hline 2 & \mathrm { E } & \mathrm { F } & \mathrm { G } & \mathrm { H } \\\hline 3 & \mathrm { I } & \mathrm { J } & \mathrm { K } & \mathrm { L } \\\hline\end{array}$$

Question 76

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 77

Johnson Company bought a light general purpose truck for $20,000. Calculate the yearly depreciation using MACRS (5-year class)for the first three years.

Question 78

Using MACRS 7 year class, what is depreciation in year 2 on furniture costing $12,000?

Question 79

Find the Annual Recovery for Year 1.
$$\begin{array} { | c | c | c | c | c | } \hline \text { Method } & \text { Purchased } & \text { Cost } & \text { Recovery Class } & \begin{array} { c } \text { Annual Recovery for } \\\text { Year 1 }\end{array} \\\hline \text { MACRS } & \text { Nov } 5 & \$ 12,000 & 3 & \text { A } \\\hline\end{array}$$

Question 80

A truck costing $25,000 with a residual value of $5,000 was purchased by Rim Corporation. The truck's estimated life is 10 years. At the end of year 2 what is the book value using the declining-balance method? Assume a depreciation rate of twice the straight-line rate.