Question 1

Use the following information for questions 
On January 1, 2015, Sundry Corp.purchased equipment for $55,000.It was expected to last 8 years, after which it will be sold for $3,000.It is expected to be used for a total of 8,000 machine hours, and was used for 900 hours during the year ended December 31, 2015.
-The depreciation expense for 2015 using the units-of-production method will be
A)$5,850.
B)$6,188.
C)$6,500.
D)$13,750.

Accepted Answer

Depreciation expense = (Cost - Residual value) * (Actual machine hours / Estimated machine hours)= ($55,000 - $3,000) * (900 / 8,000)= $52,000 * 0.1125= $5,850

Question 2

Equipment was purchased on January 1 for $39,000 with an estimated residual value of $3,000.The current year's Depreciation Expense is $4,000, calculated on the straight-line basis, and the balance of the Accumulated Depreciation account at the end of the year is $12,000.The remaining useful life of the equipment is
A)3 years.
B)5 years.
C)6 years.
D)9 years.

Accepted Answer

The answer of Equipment was purchased on January 1 for...

Question 3

The diminishing-balance method of depreciation produces a(n)
A)decreasing depreciation expense each period.
B)increasing depreciation expense each period.
C)diminishing percentage rate each period.
D)constant amount of depreciation expense each period.

Accepted Answer

The diminishing-balance method of depreciation produces a decreasing depreciation expense each period as it calculates depreciation based on a constant percentage rate applied to the net book value of the asset, which decreases each period.

Question 4

A company purchased factory equipment on May 1, 2015 for $30,000.It is estimated that the equipment will have a $4,200 residual value at the end of its 8-year useful life.Using straight-line depreciation, the depreciation expense for the years ended December 31, 2015 and 2016 is
A)$2,500 in 2015 and $3,750 in 2016.
B)$3,225 in 2015 and $3,225 in 2016.
C)$2,150 in 2015 and $3,225 in 2016.
D)None of the above.

Accepted Answer

The annual depreciation expense is calculated as ($30,000 - $4,200) / 8 = $3,225. For 2015, depreciation is for 8 months (May to December), so $3,225 * (8/12) = $2,150. For 2016, it's the full year, so $3,225.

Question 5

Beynon Corp.purchased office equipment for $20,000, with an estimated residual value of $4,000 at the end of its 8-year useful life.Assuming the double diminishing-balance method is used, the constant percentage to be applied against the carrying amount each year is
A)10%.
B)12.5%.
C)25%.
D)not determinable.

Accepted Answer

The answer of Beynon Corp.purchased office equipment for $20,000, with...

Question 6

On April 1, 2015, a machine was purchased for $33,600.It was estimated that it would have a $3,200 residual value at the end of its 5-year useful life.It was also estimated that the machine would be used for a total of 80,000 hours over the 5 years.If the actual number of machine hours used in 2015 was 12,000 hours and the company uses the units-of-production method of depreciation, the depreciation expense for 2015 would be
A)$5,040.
B)$4,560.
C)$3,780.
D)$3,420.

Accepted Answer

The answer of On April 1, 2015, a machine was...

Question 7

Management should select the depreciation method that
A)is easiest to apply.
B)best measures the asset's fair value each period over its useful life.
C)best reflects the pattern in which the asset's future economic benefits are to be consumed.
D)is required by the government.

Accepted Answer

The correct depreciation method is the one that best reflects the pattern in which the asset's future economic benefits are expected to be consumed by the entity. This approach ensures that the depreciation expense recorded in each period accurately represents the actual usage of the asset, aligning the expense with the revenue it generates.

Question 8

The depreciation method that applies a constant percentage to the carrying amount at the beginning of the period in calculating depreciation is called
A)straight-line.
B)units-of-production.
C)diminishing-balance.
D)component depreciation.

Accepted Answer

The method that applies a constant percentage to the carrying amount at the beginning of the period in calculating depreciation is called diminishing-balance.

Question 9

Equipment was purchased for $20,000.It is estimated that the equipment will have a $3,000 residual value at the end of its 5-year useful life.Using the straight-line method, annual depreciation expense will be
A)$3,400.
B)$4,000.
C)$4,600.
D)$5,000.

Accepted Answer

The answer of Equipment was purchased for $20,000.It is estimated...

Question 10

Jemima Ltd.purchased factory equipment for $200,000, and estimated that the equipment will have a $20,000 residual value at the end of its estimated 5-year useful life.If Jemima uses the double diminishing-balance method of depreciation, the depreciation expense for the second year after purchase would be
A)$43,200.
B)$48,000.
C)$72,000.
D)$80,000.

Accepted Answer

The answer of Jemima Ltd.purchased factory equipment for $200,000, and...

Question 11

Equipment with a cost of $160,000, an estimated residual value of $10,000, and an estimated life of 4 years, was purchased on April 1, 2015.If the straight-line method is used, the depreciation expense for calendar 2015 is
A)$40,000.
B)$37,500.
C)$30,000.
D)$28,125.

Accepted Answer

The annual depreciation is ($160,000 - $10,000) / 4 = $37,500. Since the equipment was purchased on April 1, 2015, it was in use for 9 months in 2015. Therefore, the depreciation expense for 2015 is $37,500 * (9/12) = $28,125.

Question 12

On July 1, 2015, a machine with a useful life of five years and a residual value of $4,000 was purchased for $20,000.Under straight-line depreciation, what is the depreciation expense for calendar 2016?
A)$4,000
B)$3,556
C)$3,200
D)$1,600

Accepted Answer

The annual straight-line depreciation expense is calculated as (purchase price - residual value) / useful life.

In this case, the annual depreciation expense = ($20,000 - $4,000) / 5 = $3,200.

Therefore, the depreciation expense for calendar 2016 (assuming the machine was purchased on July 1, 2015) would be $3,200 x 6/12 (half of the year) = $1,600.

Therefore, the best choice is C, with the correct depreciation expense for calendar year 2016.

Question 13

A machine that cost $72,000 has an estimated residual value of $6,000 and an estimated useful life of 5 years or 30,000 hours.Using the units-of-production method, the depreciation expense for the second year, during which the machine was used 5,000 hours, would be
A)$14,400.
B)$13,200.
C)$12,000.
D)$11,000.

Accepted Answer

The answer of A machine that cost $72,000 has an...

Question 14

On October 1, 2015, Ming Wo Ltd.places a new asset into service.The cost of the asset is $16,000 with an estimated 5-year life and $4,000 residual value.If Ming Wo uses straight-line depreciation, the depreciation expense for the year ended January 31, 2016 is
A)$ 600.
B)$ 800.
C)$1,067.
D)$2,400.

Accepted Answer

To calculate the depreciation expense for the year ended January 31, 2016 using straight-line depreciation, we need to determine the depreciable cost first.

Depreciable cost = cost of asset - residual value
Depreciable cost = $16,000 - $4,000
Depreciable cost = $12,000

Next, we need to determine the annual depreciation expense.

Annual depreciation expense = depreciable cost / asset life
Annual depreciation expense = $12,000 / 5
Annual depreciation expense = $2,400

Since the asset was placed into service on October 1, 2015, only 4 months of depreciation will be recorded for the year ended January 31, 2016.

Depreciation expense for the year ended January 31, 2016 = (annual depreciation expense / 12) x number of months in service
Depreciation expense for the year ended January 31, 2016 = ($2,400 / 12) x 4
Depreciation expense for the year ended January 31, 2016 = $800

Therefore, the best answer choice is B, which is $800.

Question 15

A truck was purchased for $40,000 and it was estimated to have a $4,000 residual value.Using the straight-line method, monthly depreciation expense of $600 was recorded.Therefore, the annual depreciation rate expressed as a percentage is
A) 2%.
B)17%.
C)18%.
D)20%.

Accepted Answer

The answer of A truck was purchased for $40,000 and...

Question 16

Tran Inc.purchased equipment for $48,000, and estimated that the equipment will have a $4,000 residual value at the end of its 8-year useful life.Using the double diminishing-balance method, the depreciation expense for the third year would be
A)$9,000.
B)$6,750.
C)$6,188.
D)$5,500.

Accepted Answer

The answer of Tran Inc.purchased equipment for $48,000, and estimated...

Question 17

Use the following information for questions 
On January 1, 2015, Sundry Corp.purchased equipment for $55,000.It was expected to last 8 years, after which it will be sold for $3,000.It is expected to be used for a total of 8,000 machine hours, and was used for 900 hours during the year ended December 31, 2015.
-The depreciation expense for 2015 using the straight-line method will be
A)$5,850.
B)$6,500.
C)$6,875.
D)$7,250.

Accepted Answer

The annual depreciation expense using the straight-line method is calculated as (cost of equipment - salvage value) / useful life in years, or in this case, hours. 
Therefore, the annual depreciation expense is (55,000 - 3,000) / 8,000 = $6.50 per hour.
Since the equipment was only used for 900 hours in 2015, the depreciation expense for the year is 900 x $6.50 = $5,850. Therefore, the correct answer is B.

Question 18

Equipment was purchased for $25,000.Freight charges amounted to $700 and there was a cost of $3,000 for building a foundation and installing the equipment.It is estimated that the equipment will have a $1,600 residual value at the end of its 5-year useful life.Using the straight-line method, annual depreciation expense will be
A)$4,540.
B)$4,680.
C)$5,420.
D)$5,740.

Accepted Answer

The answer of Equipment was purchased for $25,000.Freight charges amounted...

Question 19

Use the following information for questions 
On January 1, 2015, Sundry Corp.purchased equipment for $55,000.It was expected to last 8 years, after which it will be sold for $3,000.It is expected to be used for a total of 8,000 machine hours, and was used for 900 hours during the year ended December 31, 2015.
-The depreciation expense for 2015 using the double diminishing-balance method will be
A)$ 6,875.
B)$12,375.
C)$13,000.
D)$13,750.

Accepted Answer

The double diminishing-balance method calculates depreciation by doubling the straight-line rate. The straight-line rate is 1/8 years = 12.5%. Double that is 25%. Depreciation for 2015 is 25% of $55,000, which equals $13,750.

Question 20

On January 1, 2015, a machine with a useful life of five years and a residual value of $2,500 was purchased for $25,000.Using the double diminishing-balance method, the depreciation expense for the year ending December 31, 2016 would be
A)$10,000.
B)$ 9,000.
C)$ 6,000.
D)$ 5,400.

Accepted Answer

The double declining balance method uses a depreciation rate that is double the straight line rate. The formula for calculating depreciation using the double declining balance method is:

Depreciation expense = (Book value at beginning of year) x (Depreciation rate)

To calculate the depreciation rate using the double declining balance method, first calculate the straight line rate:

Straight line rate = (100% - Residual value percentage) / Useful life

Residual value percentage = Residual value / Purchase price = 2,500 / 25,000 = 10%

Straight line rate = (100% - 10%) / 5 = 18%

Double declining balance rate = 2 x Straight line rate = 2 x 18% = 36%

Using the formula above, we can calculate the book value at the beginning of the year:

Book value at beginning of year 2016 = Purchase price - Accumulated depreciation
Accumulated depreciation at the end of 2015 = $25,000 x 36% = $9,000
Book value at beginning of year 2016 = $25,000 - $9,000 = $16,000

Now we can calculate the depreciation expense for 2016:

Depreciation expense for 2016 = $16,000 x 36% = $5,760

However, since this exceeds the maximum amount that can be depreciated under the double declining balance method (twice the straight line rate), we need to use the straight line method for the final year of the asset's life.

Straight line rate = (100% - Residual value percentage) / Useful life = (100% - 10%) / 5 = 18%
Depreciation expense for 2017 = $16,000 x 18% = $2,880

Therefore, the total depreciation expense for 2016 and 2017 is $5,760 + $2,880 = $8,640, which is closest to choice C ($6,000).

Quiz 9: Reporting and Analyzing Long-Lived Assets

The diminishing-balance method of depreciation produces a(n)

A company purchased factory equipment on May 1, 2015 for $30,000.It is estimated that the equipment will have a $4,200 residual value at the end of its 8-year useful life.Using straight-line depreciation, the depreciation expense for the years ended December 31, 2015 and 2016 is

Beynon Corp.purchased office equipment for $20,000, with an estimated residual value of $4,000 at the end of its 8-year useful life.Assuming the double diminishing-balance method is used, the constant percentage to be applied against the carrying amount each year is

Management should select the depreciation method that

The depreciation method that applies a constant percentage to the carrying amount at the beginning of the period in calculating depreciation is called

Equipment was purchased for $20,000.It is estimated that the equipment will have a $3,000 residual value at the end of its 5-year useful life.Using the straight-line method, annual depreciation expense will be

Equipment with a cost of $160,000, an estimated residual value of $10,000, and an estimated life of 4 years, was purchased on April 1, 2015.If the straight-line method is used, the depreciation expense for calendar 2015 is

On July 1, 2015, a machine with a useful life of five years and a residual value of $4,000 was purchased for $20,000.Under straight-line depreciation, what is the depreciation expense for calendar 2016?

A machine that cost $72,000 has an estimated residual value of $6,000 and an estimated useful life of 5 years or 30,000 hours.Using the units-of-production method, the depreciation expense for the second year, during which the machine was used 5,000 hours, would be

On October 1, 2015, Ming Wo Ltd.places a new asset into service.The cost of the asset is $16,000 with an estimated 5-year life and $4,000 residual value.If Ming Wo uses straight-line depreciation, the depreciation expense for the year ended January 31, 2016 is

A truck was purchased for $40,000 and it was estimated to have a $4,000 residual value.Using the straight-line method, monthly depreciation expense of $600 was recorded.Therefore, the annual depreciation rate expressed as a percentage is

Tran Inc.purchased equipment for $48,000, and estimated that the equipment will have a $4,000 residual value at the end of its 8-year useful life.Using the double diminishing-balance method, the depreciation expense for the third year would be

On January 1, 2015, a machine with a useful life of five years and a residual value of $2,500 was purchased for $25,000.Using the double diminishing-balance method, the depreciation expense for the year ending December 31, 2016 would be