Question 1

On April 1, 2018, Check Mate Ltd. places a new asset into service. The cost of the asset is $40,000 with an estimated 8-year life and $2,500 residual value. Assuming that Check Mate uses the double diminishing-balance method of depreciation, what is the carrying amount of the asset at December 31, 2018?

Accepted Answer

The answer of On April 1, 2018, Check Mate Ltd....

Question 2

Management should select the depreciation method that

Accepted Answer

Management should select the depreciation method that best reflects the pattern in which the asset's future economic benefits are to be consumed, as this provides a more accurate representation of the asset's usage and value over time.

Question 3

On October 1, 2018, 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, 2019 is

Accepted Answer

The annual depreciation expense is calculated as (Cost - Residual Value) / Useful Life = ($16,000 - $4,000) / 5 = $2,400. For the period from October 1, 2018, to January 31, 2019, which is 4 months, the depreciation expense is ($2,400 / 12) * 4 = $800.

Question 4

With regard to depreciation and income taxes, which of the following statements is not true?

Accepted Answer

The taxpayer is not required to choose a method that reflects the pattern of economic benefits; instead, they must follow the prescribed methods and rates set by tax authorities.

Question 5

On July 1, 2018, 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 2019?

Accepted Answer

The answer of On July 1, 2018, a machine with...

Question 6

Use the following information for questions.
On January 1, 2017, Flowers Unlimited purchased a new delivery van. The van cost $35,000 with an estimated life of 5 years and $5,000 residual value. Double diminishing-balance depreciation will be used.
-What is the depreciation expense for calendar 2017?

Accepted Answer

The double diminishing-balance method calculates depreciation by doubling the straight-line rate. The straight-line rate is 1/5 = 20%, so double is 40%. Depreciation for 2017 is 40% of $35,000, which is $14,000.

Question 7

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

Accepted Answer

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

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

Accepted Answer

The diminishing-balance method applies a constant percentage to the carrying amount at the beginning of each period to calculate depreciation.

Question 9

Equipment that cost of $180,000 has an estimated residual value of $15,000 and an estimated useful life of 4 years or 25,000 hours. Using the units-of-production method, the depreciation expense for the first year, during which the machine was used 3,300 hours, would be

Accepted Answer

The units-of-production method calculates depreciation based on usage. The depreciation per hour is ($180,000 - $15,000) / 25,000 hours = $6.60 per hour. For 3,300 hours, the depreciation expense is 3,300 hours * $6.60/hour = $21,780.

Question 10

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

Accepted Answer

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

Question 11

Cordo Ltd. uses the units-of-production depreciation method. A new asset is purchased for $30,000 that will produce an estimated 90,000 units over its useful life. Estimated residual value is $3,000. What is the depreciable cost per unit?

Accepted Answer

The depreciable cost per unit is calculated by subtracting the residual value from the purchase cost and then dividing by the total estimated units: ($30,000 - $3,000) / 90,000 units = $0.30 per unit.

Question 12

Units-of-production is an appropriate depreciation method to use when

Accepted Answer

Units-of-production is suitable when the asset's use varies significantly, as it allocates depreciation based on actual usage rather than time.

Question 13

On April 1, 2018, 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 2018 was 12,000 hours and the company uses the units-of-production method of depreciation, the depreciation expense for 2018 would be

Accepted Answer

The answer of On April 1, 2018, a machine was...

Question 14

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

Accepted Answer

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

Question 15

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

Accepted Answer

The double diminishing-balance method uses twice the straight-line rate. The straight-line rate is 1/8 (useful life), which is 12.5%. Therefore, the double diminishing-balance rate is 25%.

Question 16

The calculation of depreciation using the diminishing-balance method

Accepted Answer

The diminishing-balance method of depreciation applies a constant rate to the declining book value of the asset each year, not to its original cost or a constant carrying amount. This method does not consider the residual value in calculating the depreciation expense for the year, but it does ensure that the asset is not depreciated below its residual value over its useful life. Choices B, C, and D are incorrect descriptions of how the diminishing-balance method works.

Question 17

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

Accepted Answer

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

Question 18

Use the following information for questions.
On January 1, 2018, Anvil Corp. purchased equipment for $60,000. It was expected to last 5 years, after which it will be sold for $5,000. It is expected to be used for a total of 10,000 machine hours, and was used for 750 hours during the year ended December 31, 2018.
-The depreciation expense for 2018 using the double diminishing-balance method will be

Accepted Answer

The double diminishing-balance method calculates depreciation by doubling the straight-line rate. The straight-line rate is 1/5 = 20%, so the double rate is 40%. Depreciation for 2018 is 40% of $60,000, which is $24,000.

Question 19

Use the following information for questions.
On January 1, 2017, Flowers Unlimited purchased a new delivery van. The van cost $35,000 with an estimated life of 5 years and $5,000 residual value. Double diminishing-balance depreciation will be used.
-What is the balance in the Accumulated Depreciation account at the end of 2018?

Accepted Answer

Double declining-balance depreciation is twice the straight-line depreciation rate. The straight-line depreciation rate is (cost - residual value) / life = (35,000 - 5,000) / 5 = 6,000 / 5 = 1,200 per year. The double declining-balance depreciation rate is 2 * 1,200 = 2,400 per year. The depreciation expense for 2017 is 2,400 * 35,000 = 84,000. The book value at the end of 2017 is 35,000 - 84,000 = 26,600. The depreciation expense for 2018 is 2,400 * 26,600 = 63,840. The book value at the end of 2018 is 26,600 - 63,840 = 12,760. The balance in the Accumulated Depreciation account at the end of 2018 is 84,000 + 63,840 = 147,840.

Question 20

On January 1, 2018, 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, 2019 would be

Accepted Answer

The double diminishing-balance method calculates depreciation by applying a constant rate to the declining book value. The rate is double the straight-line rate, which is 40% for a 5-year life. For 2018, depreciation is $25,000 * 40% = $10,000. The book value at the start of 2019 is $15,000. Depreciation for 2019 is $15,000 * 40% = $6,000.

Quiz 9: Reporting and Analyzing Long-Lived Assets