Question 1

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 2

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

Accepted Answer

To calculate the depreciation expense for the second year using the straight-line method, we need to divide the depreciable cost (original cost minus salvage value) by the useful life of the asset in years. 
Depreciable cost = $50,000 - $5,000 = $45,000
Useful life in years = (5 years + 7 years) / 2 = 6 years
Depreciation expense per year = $45,000 / 6 years = $7,500
Therefore, the depreciation expense for the second year would be $7,500.

Question 3

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 4

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 5

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?

Accepted Answer

($12,000 - $2,000)/ 5 = $2,000 depr exp per yr; 9/12 × $2,000 = $1,500.

Question 6

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.

Accepted Answer

The answer of Martha Run buys a new duplicating machine...

Question 7

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?

Accepted Answer

The Modified Accelerated Cost Recovery System (MACRS) allows for faster depreciation in the early years of an asset's life. For a 5-year class asset, the MACRS depreciation rates are as follows: Year 1 - 20%, Year 2 - 32%, Year 3 - 19.2%, Year 4 - 11.52%, Year 5 - 11.52%, and Year 6 - 5.76%. Therefore, in year 2, the depreciation expense would be 32% of $25,000, which equals $8,000.

Question 8

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

To calculate depreciation expense using the declining-balance method at twice the straight-line rate, we first need to calculate the straight-line rate:

Straight-line rate = 100% / Useful life = 100% / 5 = 20%

Declining-balance rate = Straight-line rate x 2 = 20% x 2 = 40%

Using the declining-balance method, we multiply the book value of the truck at the beginning of the year by the declining-balance rate to get the depreciation expense for the year.

Book value at the beginning of year 2 = Cost - Accumulated depreciation
Accumulated depreciation at the end of year 1 = Cost x (1 - Straight-line rate) = $60,000 x (1 - 20%) = $48,000
Book value at the beginning of year 2 = $60,000 - $48,000 = $12,000

Depreciation expense for year 2 = Book value at the beginning of year 2 x Declining-balance rate
Depreciation expense for year 2 = $12,000 x 40% = $4,800

However, we need to make sure that the depreciation expense does not exceed the difference between the book value and the residual value. In this case, the maximum depreciation expense for year 2 would be:

Maximum depreciation expense for year 2 = Book value at the beginning of year 2 - Residual value
Maximum depreciation expense for year 2 = $12,000 - $6,000 = $6,000

Since the calculated depreciation expense of $4,800 is less than the maximum depreciation expense of $6,000, it is a valid value. Therefore, the answer is C) $14,400.

Question 9

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 10

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

Accepted Answer

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

Question 11

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

The answer of Using the straight-line method, what is the...

Question 12

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.

Accepted Answer

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Question 13

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

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

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

Therefore, the depreciation expense for the truck driven 15,000 miles in the first year is $1,500. Answer B is the best choice.

Question 14

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.

Question 15

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?

Accepted Answer

($15,000 - $5,000)/10,000 = $1.00 per unit; 400 × $1.00 = $400 depreciation expense.

Question 16

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

The declining-balance method at twice the straight-line rate means that the depreciation rate will be 40% each year (2 x 20%).

Year 1:
Depreciation expense = $35,000 x 40% = $14,000 
Book value at the end of year 1 = $35,000 - $14,000 = $21,000

Year 2:
Depreciation expense = $21,000 x 40% = $8,400
Book value at the end of year 2 = $21,000 - $8,400 = $12,600

So the answer is C) $12,600.

Question 17

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?

Accepted Answer

($25,000 - $5,000)/ 5 = $4,000; $4,000 × 3 = $12,000; $25,000 - $12,000 = $13,000 = Book Value; $13,000 - $11,000 (selling price)= $2,000.

Question 18

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

Accepted Answer

To calculate depreciation expense using the straight-line method, we need to subtract the salvage value from the cost of the asset and then divide by the useful life of the asset. 
Depreciation expense = (Cost - Salvage value) / Useful life
In the given information, the cost of the asset is $40,000, the salvage value is $4,000, and the useful life is 10 years.
Depreciation expense = ($40,000 - $4,000) / 10 = $3,600 per year.
Therefore, the correct choice is C. None of the other options is equal to $3,600.

Quiz 17: Depreciation

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) ?