Question 1

Klayton Corporation purchased factory equipment that was installed and put into service January 2, 2014, at a total cost of $120,000. Salvage value was estimated at $8,000. The equipment is being depreciated over four years using the double-declining balance method. For the year 2015, Klayton should record depreciation expense on this equipment of

Accepted Answer

Double-declining balance method means that depreciation is calculated at twice the straight-line rate.

Straight-line rate = 1/4 = 0.25 (since the asset is being depreciated over 4 years)

Double-declining balance rate = 2 * 0.25 = 0.5

Depreciation expense for 2014 (the year the equipment was put into service) = $120,000 * 0.5 = $60,000

Depreciation expense for 2015 = ($120,000 - $60,000) * 0.5 = $30,000

Therefore, the answer is B, $30,000.

Question 2

Halltown Company purchased a depreciable asset for $450,000. The estimated salvage value is $30,000, and the estimated useful life is 8 years. The double-declining balance method will be used for depreciation. What is the depreciation expense for the second year on this asset?

Accepted Answer

First, we need to calculate the annual depreciation rate:
Annual depreciation rate = 2 / useful life in years = 2 / 8 = 0.25
Second, we need to calculate the depreciation expense for the first year:
Depreciation expense for the first year = (asset cost - salvage value) x annual depreciation rate
Depreciation expense for the first year = ($450,000 - $30,000) x 0.25 = $105,000
Finally, we can calculate the depreciation expense for the second year:
Depreciation expense for the second year = (asset cost - accumulated depreciation - salvage value) x annual depreciation rate
Depreciation expense for the second year = ($450,000 - $105,000 - $30,000) x 0.25 = $84,375

Question 3

A plant asset has a cost of $32,000 and a salvage value of $8,000. The asset has a three-year life. If depreciation in the third year amounted to $4,000, which depreciation method was used?

Accepted Answer

The sum-of-the-years'-digits method results in decreasing depreciation amounts each year. Given the depreciation in the third year is $4,000, it aligns with this method's pattern.

Question 4

On September 19, 2014, Markham Co. purchased machinery for $285,000. Salvage value was estimated to be $15,000. The machinery will be depreciated over eight years using the sum-of-the-years'-digits method. If depreciation is computed on the basis of the nearest full month, Markham should record depreciation expense for 2015 on this machinery of

Accepted Answer

The depreciation expense for each year can be calculated by:
Depreciation base = Cost – Salvage value 
Depreciation expense = Depreciation base × (Remaining life in years/Sum of the years' digits)

In this case, the depreciation base is: $285,000 - $15,000 = $270,000

The sum of the years' digits can be calculated by adding the digits of the years of the asset's expected life. In this case, the years of the asset's expected life are 8. So, the sum of the years' digits is: 8+7+6+5+4+3+2+1 = 36

For the year 2015, the remaining life of the asset is 8-1=7 years.
Therefore, the depreciation expense for 2015 would be: 
Depreciation expense = $270,000 × (7/36) = $52,500
Since depreciation is computed on the basis of the nearest full month, we need to prorate the expense for the months the asset was used in 2015. Assuming the asset was purchased on September 19, 2014, we can calculate the prorated amount as follows:
$52,500/12 months × 4 months (September to December) = $17,500
So, the depreciation expense for 2015 would be $17,500 × 3 = $58,125. Therefore, the best choice is C.

Question 5

Jasmine Company purchased a depreciable asset for $225,000. The estimated salvage value is $15,000, and the estimated useful life is 8 years. The double-declining balance method will be used for depreciation. What is the depreciation expense for the second year on this asset?

Accepted Answer

First, we need to calculate the annual depreciation rate, which is 1/8 (useful life) x 2 (double-declining balance rate) = 0.25 or 25%. 
For the second year, we need to apply this rate to the asset's beginning balance, which is $225,000 - the first-year depreciation expense of $56,250 = $168,750. 
The depreciation expense for the second year is therefore $168,750 x 25% = $42,188. Hence, the correct answer is option C.

Question 6

Falcon Company purchased a depreciable asset for $125,000. The estimated salvage value is $10,000, and the estimated useful life is 10 years. The straight-line method will be used for depreciation. What is the depreciation base of this asset?

Accepted Answer

The depreciation base is simply the cost of the asset minus its estimated salvage value. Therefore, the depreciation base of this asset is $125,000 - $10,000 = $115,000.

Question 7

Henry Company purchased a depreciable asset for $240,000. The estimated salvage value is $22,000, and the estimated useful life is 10 years. The straight-line method will be used for depreciation. What is the depreciation base of this asset?

Accepted Answer

The depreciation base is the cost of the asset minus its estimated salvage value. So, the depreciation base in this case would be $240,000 - $22,000 = $218,000. Therefore, the correct choice is C.

Question 8

Endeavor Company purchased a depreciable asset for $800,000. The estimated salvage value is $40,000, and the estimated useful life is 10,000 hours. Endeavor used the asset for 1,100 hours in the current year. The activity method will be used for depreciation. What is the depreciation expense on this asset?

Accepted Answer

To calculate the depreciation expense using the activity method, we must first calculate the depreciation rate per unit of activity.

Depreciation rate per unit of activity = (asset cost - salvage value) / total units of activity

Total units of activity = estimated useful life in hours

Depreciation rate per unit of activity = ($800,000 - $40,000) / 10,000 = $76 per hour

To calculate the depreciation expense for the current year, we multiply the depreciation rate per unit of activity by the number of hours the asset was used in the current year:

Depreciation expense = depreciation rate per unit of activity x number of hours used in the current year

Depreciation expense = $76 x 1,100 = $83,600

Therefore, the correct answer is B.

Question 9

On January 1, 2014, Garden Company purchased a new machine for $2,800,000. The new machine has an estimated useful life of nine years and the salvage value was estimated to be $100,000. Depreciation was computed on the sum-of-the-years'-digits method. What amount should be shown in Garden's balance sheet at December 31, 2015, net of accumulated depreciation, for this machine?

Accepted Answer

The sum-of-the-years'-digits method involves calculating the sum of the years of the asset's life and then depreciating the asset based on its remaining life each year. For a 9-year life asset, the sum is 1+2+3+4+5+6+7+8+9 = 45. The depreciation for each year is a fraction of the depreciable base ($2,800,000 - $100,000 = $2,700,000), with the numerator being the remaining life of the asset and the denominator being the sum of the years' digits (45).For the first year, the depreciation expense is (9/45) * $2,700,000 = $540,000.For the second year, it's (8/45) * $2,700,000 = $480,000.Total depreciation over two years is $540,000 + $480,000 = $1,020,000.The net book value at December 31, 2015, is the original cost minus accumulated depreciation: $2,800,000 - $1,020,000 = $1,780,000.

Question 10

Grover Corporation purchased a truck at the beginning of 2014 for $93,600. The truck is estimated to have a salvage value of $3,600 and a useful life of 120,000 miles. It was driven 21,000 miles in 2014 and 29,000 miles in 2015. What is the depreciation expense for 2015?

Accepted Answer

To find the depreciation expense for 2015, we need to use the units-of-production method.

Total miles driven in 2014 and 2015 = 21,000 + 29,000 = 50,000
Total miles driven as a percentage of useful life = (50,000 / 120,000) x 100% = 41.67%

Depreciable cost = cost - salvage value = $93,600 - $3,600 = $90,000
Depreciation rate = depreciable cost / total units of production = $90,000 / 120,000 = $0.75 per mile
Depreciation expense for 2015 = depreciation rate x miles driven in 2015 = $0.75 x 29,000 = $21,750

Therefore, the correct choice is C.

Question 11

Ramos Co. purchased machinery that was installed and ready for use on January 3, 2014, at a total cost of $115,000. Salvage value was estimated at $15,000. The machinery will be depreciated over five years using the double-declining balance method. For the year 2015, Ramos should record depreciation expense on this machinery of

Accepted Answer

First, we need to calculate the annual depreciation rate using the double-declining balance method:

Annual Depreciation Rate = (100% / Useful life) x 2
Annual Depreciation Rate = (100% / 5 years) x 2
Annual Depreciation Rate = 40%

Then, we can calculate the depreciation expense for the year 2015:

Depreciation Expense = Book Value at Beginning of the Year x Annual Depreciation Rate
Book Value at Beginning of the Year = Cost - Accumulated Depreciation
Book Value at Beginning of the Year = $115,000 - $46,000 (depreciation expense for 2014)
Book Value at Beginning of the Year = $69,000

Depreciation Expense = $69,000 x 40%
Depreciation Expense = $27,600

Therefore, Ramos should record depreciation expense on this machinery of $27,600 for the year 2015.

Question 12

Slotkin Products purchased a machine for $39,000 on July 1, 2014. The company intends to depreciate it over 8 years using the double-declining balance method. Salvage value is $3,000. Depreciation for 2015 to the closest dollar is

Accepted Answer

First, we need to calculate the annual depreciation rate:
Annual depreciation rate = 2 / years of useful life = 2 / 8 = 0.25 or 25%

Next, we need to calculate the depreciation expense for 2014:
Depreciation expense for 2014 = (purchase price - salvage value) x annual depreciation rate x (# of months in service /12)
Depreciation expense for 2014 = ($39,000 - $3,000) x 0.25 x (6 / 12) = $4,875

Finally, we can calculate the depreciation expense for 2015:
Depreciation expense for 2015 = (purchase price - accumulated depreciation - salvage value) x annual depreciation rate
Accumulated depreciation for 2014 = $4,875
Accumulated depreciation for 2015 = $4,875 + depreciation expense for 2015
Depreciation expense for 2015 = ($39,000 - $4,875 - $3,000) x 0.25 = $8,531.25

Rounding to the nearest dollar, the depreciation expense for 2015 is $8,531, which corresponds to choice C.

Question 13

On January 3, 2013, Salazar Co. purchased machinery. The machinery has an estimated useful life of eight years and an estimated salvage value of $60,000. The depreciation applicable to this machinery was $130,000 for 2015, computed by the sum-of-the-years'-digits method. The acquisition cost of the machinery was

Accepted Answer

The sum-of-the-years'-digits method for an 8-year life has a denominator of 36 (8+7+6+5+4+3+2+1). For 2015, the third year, the fraction is 6/36. The depreciation for 2015 is $130,000, so the depreciable base is $130,000 / (6/36) = $780,000. Adding the salvage value of $60,000 gives an acquisition cost of $840,000.

Question 14

On January 1, 2008, Forrest Company purchased equipment at a cost of $130,000. The equipment was estimated to have a salvage value of $4,000 and it is being depreciated over eight years under the sum-of-the-years'-digits method. What should be the charge for depreciation of this equipment for the year ended December 31, 2015?

Accepted Answer

The sum-of-the-years'-digits method involves calculating depreciation based on a fraction where the numerator is the remaining life of the asset and the denominator is the sum of the years' digits. For an 8-year life, the sum of the years' digits is 36 (1+2+3+4+5+6+7+8). By 2015, the equipment is in its 8th year, so the fraction is 1/36. The depreciable amount is $126,000 ($130,000 - $4,000). Therefore, the depreciation for 2015 is $126,000 * (1/36) = $3,500.

Question 15

On July 1, 2014, Mendes Corporation purchased factory equipment for $225,000. Salvage value was estimated to be $6,000. The equipment will be depreciated over five years using the double-declining balance method. Counting the year of acquisition as one-half year, Mendes should record depreciation expense for 2015 on this equipment of

Accepted Answer

The double-declining balance method calculates depreciation by doubling the straight-line rate. The straight-line rate is 20% (1/5 years), so the double-declining rate is 40%. For 2014, depreciation is $225,000 * 40% * 0.5 = $45,000. The book value at the start of 2015 is $225,000 - $45,000 = $180,000. Depreciation for 2015 is $180,000 * 40% = $72,000.

Question 16

Carson Company purchased a depreciable asset for $280,000. The estimated salvage value is $14,000, and the estimated useful life is 10,000 hours. Carson used the asset for 1,500 hours in the current year. The activity method will be used for depreciation. What is the depreciation expense on this asset?

Accepted Answer

First, we must calculate the depreciation rate per hour:
Depreciable cost = $280,000 - $14,000 = $266,000
Depreciation rate per hour = Depreciable cost / Estimated total hours of life = $266,000 / 10,000 = $26.60

Next, we can calculate the depreciation expense for the current year:
Depreciation expense = Depreciation rate per hour x Actual hours used = $26.60 x 1,500 = $39,900

Therefore, the correct answer is B, $39,900.

Question 17

Slotkin Products purchased a machine for $39,000 on July 1, 2014. The company intends to depreciate it over 8 years using the double-declining balance method. Salvage value is $3,000. Depreciation for 2014 is

Accepted Answer

The double-declining balance method depreciates an asset at twice the rate of straight-line depreciation. First, calculate the straight-line rate as 1/8 (since it's over 8 years), which is 12.5%. Double that for the double-declining balance method to get 25%. For the first half-year (since it was purchased on July 1 and the year ends December 31), apply 25% to the cost minus salvage value ($39,000 - $3,000 = $36,000), which is $9,000 annually. For half a year, it's $9,000/2 = $4,875.

Question 18

On January 2, 2012, Wang Company acquired equipment to be used in its manufacturing operations. The equipment has an estimated useful life of 10 years and an estimated salvage value of $30,000. The depreciation applicable to this equipment was $140,000 for 2015, computed under the sum-of-the-years'-digits method. What was the acquisition cost of the equipment?

Accepted Answer

The answer of On January 2, 2012, Wang Company acquired...

Question 19

On July 1, 2014, Nowton Co. purchased machinery for $168,000. Salvage value was estimated to be $7,000. The machinery will be depreciated over ten years using the double-declining balance method. If depreciation is computed on the basis of the nearest full month, Nowton should record depreciation expense for 2015 on this machinery of

Accepted Answer

The double-declining balance method depreciates assets at twice the straight-line rate. The straight-line depreciation rate for 10 years is 10%, so the double-declining rate is 20%. For the first full year (2015), the depreciation expense is calculated on the book value at the beginning of the year. The initial book value is $168,000. For the first half of 2014 (since it's purchased on July 1), the depreciation would be $168,000 * 20% * 6/12 = $16,800, leaving a book value of $151,200 at the beginning of 2015. The depreciation for 2015 is then $151,200 * 20% = $30,240.

Question 20

Grover Corporation purchased a truck at the beginning of 2014 for $93,600. The truck is estimated to have a salvage value of $3,600 and a useful life of 120,000 miles. It was driven 21,000 miles in 2014 and 29,000 miles in 2015. What is the depreciation expense for 2014?

Accepted Answer

The first step is to calculate the depreciation per mile:
Depreciation per mile = (Cost - Salvage value) / Useful life in miles
Depreciation per mile = ($93,600 - $3,600) / 120,000 miles
Depreciation per mile = $0.75 per mile

To calculate the depreciation for 2014, we multiply the depreciation per mile by the number of miles driven in 2014:
Depreciation for 2014 = Depreciation per mile * Miles driven in 2014
Depreciation for 2014 = $0.75 per mile * 21,000 miles
Depreciation for 2014 = $15,750

Therefore, the correct answer is B) $15,750.

Quiz 11: Depreciation, Impairments, and Depletion