Deck 13: Methods of Depreciation

Question 1

The _____ is an accelerated method of depreciation that allows larger amounts of depreciation to be taken in the early years of an asset's life.​

A) ​payback-recovery system
B) straight-line method
C) Modified Accelerated Cost Recovery System (MACRS)
D) ​double-declining-balance method

Answer 1

D

Question 2

Which of the following mathematical equations is used to calculate depreciation per unit under the units-of-production method of depreciation?

A) Depreciation per Unit = Revenue / Total Units-of-Production
B) Depreciation per Unit = Cost of Asset / Total Units-of-Production
C) Depreciation per Unit = (Cost of Asset − Trade-in Value) / Total Units-of-Production
D) Depreciation per Unit = (Cost of Asset − Maintenance Expense) / Total Units-of-Production

Answer 2

C

Question 3

Which of the following is true of the double-declining-balance method?

A) The method takes larger amounts of depreciation during the later years of an asset's life.
B) The method calculates depreciation at double the straight-line rate of depreciation.
C) The method considers the trade-in value of an asset at the beginning of the depreciation schedule.
D) The method adds the salvage value of an asset to its accumulated depreciation to compute its book value.

Answer 3

B

Question 4

A tractor costing $20,000 is depreciated using the Modified Accelerated Cost Recovery System (MACRS). The tractor belongs to 3-year property class and the depreciation rate for Year 1 is 33.33%, for Year 2 is 44.45%, for Year 3 is 14.81%, and for Year 4 is 7.41%. The depreciation expense for Year 3 is:

A) $3,453.
B) $2,962.
C) $4,987.
D) $1,876.

Question 5

Which of the following is true of depreciation expense calculated using the straight-line method?​

A) ​Depreciation expense increases over the useful life of an asset.
B) Depreciation expense varies with the units produced over the useful life of an asset.
C) Depreciation expense remains constant over the useful life of an asset.​
D) Depreciation expense first decreases and then increases over the useful life of an asset.

Question 6

A conveyor belt has a useful life of 3 years, book value of $2,000 at the end of Year 2, and a trade-in value of $1,500. The conveyor belt is depreciated using the double-declining-balance method. If the accelerated depreciation rate is 40%, compute the depreciation expense for Year 3.

Question 7

A water pump that costs $25,000 is depreciated using the double-declining-balance method. Which of the following is the depreciation expense for Year 1 if the depreciation rate as per straight-line method is 20%?

A) $10,000
B) $20,000
C) $5,000
D) $9,000

Question 8

Snowstone Company purchased an ice cream cone manufacturing machine for $20,000. The machine is estimated to have a useful life of 100,000 cones, and it is expected to have a trade-in value of $5,000. The machine's depreciation per unit is equal to: ​

A) $0.20 per cone.
B) $0.15 per cone.
C) $0.34 per cone.
D) $0.42 per cone.

Question 9

The units-of-production method is useful when the utilization of an asset is fixed.​

Question 10

The _____ is a combination of the declining-balance and straight-line depreciation methods of computing depreciation.

A) trade-in value recovery system
B) cost of goods sold method
C) Modified Accelerated Cost Recovery System
D) double-declining-balance method

Question 11

Bronze Company purchased a furnace for $10,000. The life of the furnace is estimated to be 5 years, and its trade-in value at the end of 5 years is $4,000. The yearly depreciation for the furnace is _____.

A) $1,200
B) $3,100
C) $900
D) $2,250

Question 12

The double-declining-balance method calculates depreciation on an asset at double the rate used in the:

A) units-of-production method of depreciation.
B) straight-line method of depreciation.
C) Modified Accelerated Cost Recovery System (MACRS).
D) the computation of interest payment on loan availed to buy the asset.

Question 13

Zinc Corp. purchases a truck at the beginning of Year 1 at a cost of $16,500. The truck is estimated to have a useful life of 6 years and a trade-in value of $1,500. Assuming that Zinc Corp. uses the straight-line method of depreciation, the book value of the truck at the end of Year 1 is:

A) $13,580.
B) $14,000.
C) $12,000.
D) $11,670.

Question 14

The accelerated method of depreciation allows smaller amounts of depreciation to be taken during the early life of an asset, and larger amounts to be taken during the later years of an asset's life.

Question 15

Assume that the depreciation expense for a truck is $0.12 per mile calculated under the units-of-production method. The truck travels a total distance of 9,000 miles in Year 1. Which of the following is the depreciation expense for Year 1?

A) $2,230
B) $1,800
C) $2,000
D) $1,080

Question 16

The straight line method allows a business to calculate an equal amount of depreciation expense for each year of service anticipated.​

Question 17

Under the Modified Accelerated Cost Recovery System (MACRS), the _____ is ignored.

A) life of an asset
B) trade-in value of an asset
C) cost of an asset
D) depreciation rate of an asset
​

Question 18

The Modified Accelerated Cost Recovery System (MACRS) is a system of tax schedules established by the Federal Reserve System.

Question 19

Which of the following statements is true of the Modified Accelerated Cost Recovery System (MACRS)?

A) The system provides a variety of tax rate schedules established by the Internal Revenue Service.
B) The system allows a business to calculate an equal amount of depreciation expense for each year of service anticipated.
C) The system is used only by large business groups for financial statement reporting and tax reporting.
D) The system considers the trade-in value of an asset to calculate depreciation expense over the useful life of an asset.

Question 20

The _____ calculates depreciation based on usage instead of the years of service anticipated.

A) double-declining-balance method
B) Modified Accelerated Cost Recovery System (MACRS)
C) units-of-production method
D) straight-line method