Question 1

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:

Accepted Answer

The declining-balance rate is twice the straight-line rate, which is 1/5 or 20% per year. Therefore, the depreciation rate for declining-balance method is 40% (20% x 2) per year.
In year 1, the depreciation expense would be:
$60,000 x 40% = $24,000
The book value at the end of year 1 would be:
$60,000 - $24,000 = $36,000
In year 2, the depreciation expense would be:
($36,000 x 40%) = $14,400
Therefore, the correct answer is C.

Question 2

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.

Accepted Answer

Depr Exp 1:$8,000 × .5 = $4,000; Book Value 1: $8,000 - $4,000 = $4,000;
Depr Exp 2: $4,000 × .5 = $2,000; Acc Depr 2: $2,000 + $4,000 = $6,000; Book Value 2: $4,000 - $2,000 = $2,000;
Depr Exp 3: $2,000 × .5 = $1,000; Acc Depr 3: $1,000 + $2,000 + $4,000 = $7,000;
Book Value 3: $2,000 - $1,000 = $1,000.

Question 3

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:

Accepted Answer

The answer of A truck costs $9,200 with a residual...

Question 4

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:

Accepted Answer

Declining-balance rate = 2 * straight-line rate = 2/5 = 0.4
Year 1 depreciation expense = 35,000 * 0.4 = 14,000
Book value at the end of year 1 = 35,000 - 14,000 = 21,000
Year 2 depreciation expense = 21,000 * 0.4 = 8,400
Book value at the end of year 2 = 21,000 - 8,400 = 12,600.

Therefore, the book value at the end of year 2 is $12,600 (option C).

Question 5

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

Accepted Answer

The answer of What is the depreciation expense for the...

Question 6

Roche Pharma 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?

Accepted Answer

The MACRS 5-year property class has a depreciation rate of 32% in the second year. Therefore, the depreciation expense in year 2 is 32% of $25,000, which is $8,000.

Question 7

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?

Accepted Answer

- Total depreciation = cost - residual value = $4,500 - $700 = $3,800
- Annual depreciation = total depreciation / useful life = $3,800 / 4 = $950.

Therefore, the depreciation expense for the computer would be $950 per year.

Question 8

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:

Accepted Answer

The depreciation expense can be calculated using the straight-line method.

Depreciation per mile = (Cost - Residual value) / Useful life in miles
Depreciation per mile = ($8,000 - $1,000) / 70,000 = $0.1

Depreciation expense for the first year = Depreciation per mile x miles driven in the first year
Depreciation expense for the first year = $0.1 x 15,000 = $1,500

Therefore, the depreciation expense for the first year would be $1,500. The best choice is B.

Question 9

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

Accepted Answer

The answer of What is the depreciation expense for the...

Question 10

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.

Accepted Answer

Depr Exp 1 = .5 × $20,000 = $10,000;
Acc Dep 1 = 0 + $10,000 = $10,000;
Book Value 1 = $20,000 - $10,000 = $10,000;
Acc Depr 2 = $10,000;
Book Value BOY 2 = $10,000;
Depr Exp 2 = $10,000 × .5 = $5,000;
Acc Depr EOY 2 = $10,000 + $5,000 = $15,000;
Book Value EOY 2 = $10,000 - $5,000 = $5,000;
Acc Depr 3 = $10,000 + $5,000 = $15,000;
Book Value BOY 3 = $5,000;
Depr Exp 3 = $5,000 × .5 = $2,500;
Acc Depr EOY 3 = $2,500 + $5,000 + $10,000 = $17,500;
Book Value EOY 3 = $5,000 - $2,500 = $2,500.

Question 11

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

Accepted Answer

The answer of Using the declining-balance method, complete the table...

Question 12

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)?

Accepted Answer

Using the MACRS depreciation method for a five-year class, the depreciation rates are:

Year 1: 20.00%
Year 2: 32.00%
Year 3: 19.20%
Year 4: 11.52%
Year 5: 11.52%
 
To calculate the depreciation expense for year 3, we multiply the cost of the equipment by the year 3 depreciation rate:

$180,000 * 19.20% = $34,560

Therefore, the depreciation expense in year 3 is $34,560. Option D is the correct answer.

Question 13

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:

Accepted Answer

The declining balance method at twice the straight-line rate means using the double-declining balance (DDB) method. The straight-line depreciation rate is 1/5 (20%) per year, so the DDB rate is 40% per year. Year 1 depreciation: $18,000 * 40% = $7,200, leaving a book value of $10,800. Year 2 depreciation: $10,800 * 40% = $4,320, leaving a book value of $10,800 - $4,320 = $6,480.

Quiz 17: Appreciation