Question 1

On January 1,Weldon Weston Co.purchased equipment for $250,000.It has an estimated useful life of five years and its residual value is $25,000.The company has a calendar year-end.Using the straight-line method,depreciation expense for the first year of its life equals:
A)$45,000.
B)$50,000.
C)$90,000.
D)$100,000.

Accepted Answer

Depreciation expense = (Cost − Residual value)× (1 ÷ Useful life)
= ($250,000 − $25,000)× (1 ÷ 5)= $45,000

Question 2

Which of the following statements about straight-line depreciation is correct?
A)Straight-line depreciation is the most common method of depreciation used in the U.S.for financial reporting,but is not commonly used for taxes.
B)When the straight-line method is used to compute depreciation,an asset's carrying value remains constant over the life of the asset.
C)Straight-line depreciation is an approved method to allocate the cost of an asset to expense and it serves as a measure of the physical decline in the asset.
D)The straight line method of depreciation results in a straight-line increase of depreciation expense over the life of an asset.

Accepted Answer

The straight-line method is the preferred choice because it is the easiest to use and understand,and it does a good job of matching depreciation expense to revenues when assets are used evenly over their useful lives.Most corporations use the IRS-approved Modified Accelerated Cost Recovery System (MACRS)to calculate depreciation expense for their tax returns.MACRS is similar to the declining-balance method and is applied over relatively short asset lives set by the IRS to yield high tax deductions for depreciation expense in the early years.

Question 3

Which of the following is not an amount that is needed to calculate straight-line depreciation?
A)The cost of the asset.
B)An estimate of the asset's useful economic life to the company.
C)The estimated amount that the company will receive when it disposes of the asset.
D)The cost the company will be required to incur to replace the asset.

Accepted Answer

To calculate straight-line depreciation,the cost of the asset,its useful life,and the residual value must be known.

Question 4

Heatherbrae Co.uses the units-of-production method to estimate depreciation.The company purchased a new machine for $45,000 that will produce an estimated 100,000 units over its useful life.The estimated residual value of the machine is $5,000.What is the depreciation rate per unit?
A)$4.00
B)$4.50
C)$0.40
D)$0.45

Accepted Answer

Depreciation rate per unit = (Cost − Residual value)÷ Estimated total production
= ($45,000 − $5,000)÷ 100,000 units = $0.40 per unit

Question 5

MacKenzie Manufacturing purchased equipment for $160,000.In addition,shipping charges of $2,000 were incurred to obtain the equipment.The company paid $12,500 to construct a foundation and install the equipment.The equipment is estimated to have a residual value of $15,000 at the end of its 5-year useful life. Using the straight-line method,what is the amount of depreciation expense each year?
A)$34,900
B)$34,500
C)$31,900
D)$29,900

Accepted Answer

Depreciation expense = (Cost − Residual value)× (1 ÷ Useful Life)
= [($160,000 + $2,000 + $12,500)− $15,000] × (1 ÷ 5)= $31,900 per year

Question 6

Marshall Company purchases a machine for $800,000.The machine has an estimated residual value of $40,000.The company expects the machine to produce two million units.The machine is used to make 400,000 units during the current period. If the units-of-production method is used,the depreciation expense for this period is:
A)$160,000.
B)$800,000.
C)$152,000.
D)$760,000.

Accepted Answer

Depreciation expense = (Cost − Residual value)× (Actual production this period ÷ Estimated total production)
= ($800,000 − $40,000)× (400,000 units ÷ 2,000,000 units)= $152,000

Question 7

One difference between the double-declining-balance method and the straight-line method is that the double-declining-balance method:
A)reduces book value below residual value.
B)does not consider the useful life of the asset in the calculation of depreciation.
C)cannot be used for tax purposes.
D)uses book value instead of depreciable cost in the calculation of depreciation.

Accepted Answer

The double-declining-balance method ignores residual value and calculates the period's depreciation at twice the straight-line rate applied to the declining book value of the asset.Because residual value is not included in the formula for the declining-balance method of computing depreciation expense,you must take extra care to ensure that an asset's book value is not depreciated beyond its residual value.Both methods can be used for tax purposes.

Question 8

Which of the following statements is correct when the straight-line method is used to compute depreciation?
A)The carrying value of an asset is a constant amount during the asset's useful life.
B)Accumulated depreciation is a constant amount during the asset's estimated useful life.
C)Depreciation Expense is a constant amount each year.
D)The book value of an asset is an increasing amount during the asset's useful life.

Accepted Answer

The straight-line method of depreciation provides a constant amount of Depreciation Expense each period.As a result,the carrying value or book value decreases by the same amount each period.

Question 9

At the end of the first year of an asset's life,the declining-balance depreciation:
A)causes an asset to be carried at a higher book value than that computed using the straight-line method.
B)causes an asset to be carried at a lower book value than that computed using the straight-line method.
C)causes an asset to be carried at the same book value as that computed using the straight-line method.
D)cannot be used if the resulting book value will be significantly different from that which would result from using the straight-line method.

Accepted Answer

The straight-line depreciation method allocates the depreciable cost of an asset in equal periodic amounts over its useful life.The declining-balance depreciation method is used to report more depreciation expense in the early years of an asset's life when the asset is more efficient and less in later years as the asset becomes less efficient.As a result,at the end of the first year of an asset's life,the declining-balance depreciation method causes an asset to be carried at a lower book value than that computed using the straight-line method.

Question 10

Which of the following statements about the end of an asset's life is correct?
A)At the end of an asset's life,its book value should equal its depreciable cost.
B)At the end of an asset's life,the Accumulated Depreciation should equal the residual value.
C)Assets are depreciated below residual value only when the double-declining balance method is used.
D)At the end of an asset's life,the book value would equal zero if there is no residual value.

Accepted Answer

The amount to be depreciated over the asset's life is the difference between its cost and residual value,an amount called the depreciable cost.A company should record depreciation each year of an asset's useful life until its total accumulated depreciation equals its depreciable cost.As a result,book value can never be less than residual value.

Question 11

Holly,Inc.has a building that originally cost $562,500.Holly expects to be able to sell the facility for $160,500 at the end of its useful life.The balance of the related Accumulated Depreciation account is $387,000.The depreciable cost of the facility is:
A)$175,500.
B)$226,500.
C)$402,000.
D)$160,500.

Accepted Answer

Depreciable Cost = Cost − Residual Value
= $562,500 − $160,500 = $402,000

Question 12

MacKenzie Manufacturing purchased equipment for $160,000.In addition,shipping charges of $2,000 were incurred to obtain the equipment.The company paid $12,500 to construct a foundation and install the equipment.The equipment is estimated to have a residual value of $15,000 at the end of its 5-year useful life. Using the straight-line method,what is the book value of the equipment at the end of the third full year of use?
A)$78,800
B)$55,300
C)$71,000
D)$63,800

Accepted Answer

Depreciation expense = (Cost − Residual value)× (1 ÷ Useful life)
= [($160,000 + $2,000 + $12,500)− $15,000] ÷ 5 years = $31,900 per year
Net book value = Cost − Accumulated depreciation
= ($160,000 + $2,000 + $12,500)− ($31,900 per year × 3 years)= $78,800

Question 13

Martin Company's building has a 20-year useful life and a residual value equal to 20% of the building's original cost.If the double-declining balance method is used,what depreciation rate would be used?
A)4.5%
B)5%
C)9%
D)10%

Accepted Answer

Double-declining-balance rate = 2 ÷ Useful life
= 2 ÷ 20 = 10%

Question 14

A company paid $500,000 to purchase equipment and $15,000 to have the equipment delivered to and installed in the company's production facilities.The equipment is expected to be used a total of 28,000 hours throughout its estimated useful life of six years.The estimated residual value of the equipment is $5,000.The company began using the equipment on May 1,2018.The company has an October 31,2018 year-end.It used the equipment for a total of 11,200 hours between May 1 and October 31,2018.Using the units-of-production method,what amount of depreciation expense would the company report in the income statement prepared for the year-ended October 31,2018?
A)$102,000
B)$198,000
C)$204,000
D)$206,000

Accepted Answer

Cost includes all necessary and reasonable expenditures to acquire the asset and prepare it for its intended use.
Cost = Purchase price + Delivery and installation costs
= $500,000 + $15,000 = $515,000
Depreciation expense this period = (Cost − Residual value)× (Actual production this period ÷ Estimated total production)
= ($515,000 − $5,000)× (11,200 ÷ 28,000)= $204,000

Question 15

On January 1,Luke Denton Co.purchased a truck for $125,000 which has an estimated productive life of 100,000 miles.Its residual value is $12,500.During the first full year of its useful life,the company drove the truck 25,000 miles.Its depreciation expense for the year using the units of production method is:
A)$22,500.
B)$25,000.
C)$28,125.
D)$31,250.

Accepted Answer

Depreciation expense = (Cost − Residual value)× (Actual production this period ÷ Estimated total production)
= ($125,000 − $12,500)× (25,000 ÷ 100,000)= $28,125

Question 16

Marshall Company purchases a machine for $800,000.The machine has an estimated residual value of $40,000.The company expects the machine to produce two million units.The machine is used to make 400,000 units during the current period. If the units-of-production method is used,the depreciation rate is:
A)$1.90 per unit.
B)$0.38 per unit.
C)$0.10 per unit.
D)$2.00 per unit.

Accepted Answer

Depreciation rate = (Cost − Residual value)÷ Estimated total production
= ($800,000 − $40,000)÷ 2,000,000 units = $0.38 per unit

Question 17

City View Limousine depreciates its stretch Hummer using the units-of-production depreciation method and bases usage on the miles driven per year.The estimated useful life of the vehicle is 250,000 miles.The vehicle was purchased for $115,000 and is not expected to have any residual value at the end of its life.It was driven a total of 40,000 miles during the first year of its useful life and 25,000 miles during the second year.What is the amount of Accumulated Depreciation recorded on the vehicle at the end of those two years?
A)$70,769
B)$29,900
C)$46,000
D)$18,400

Accepted Answer

Depreciation expense (for both years)= (Cost − Residual value)× (Actual production this period ÷ Estimated total production)
= ($115,000 − $0)× [(25,000 miles + 40,000 miles)÷ 250,000 miles] = $29,900

Question 18

Avalon Industries buys equipment for $24,000,expects to use it for ten years,and then sell it for $3,000.Using the straight-line method,the company should report annual depreciation for the equipment of:
A)$2,100.
B)$4,200.
C)$2,400.
D)$4,800.

Accepted Answer

Depreciation expense per year = (Cost − Residual value)× (1 ÷ Useful life)
= ($24,000 − $3,000)× 1 / 10 = $2,100

Question 19

Transport Inc.has a fleet of 10 large trucks that cost a total of $1,410,000.The fleet is expected to be driven a total of 1,000,000 miles during its estimated 10-year life and be sold for $141,000 at the end of its useful life.If the fleet was driven 125,000 miles during the current year,what is the amount of depreciation that would be calculated using the straight-line and units-of-production methods,respectively?
A)$158,625 and $141,000
B)$141,000 and $158,625
C)$126,900 and $176,250
D)$126,900 and $158,625

Accepted Answer

Straight-Line Method:
Depreciation expense per year = (Cost − Residual value)× (1 ÷ Useful life)
= ($1,410,000 − $141,000)× 1 / 10 = $126,900
Units-of-Production Method:
Depreciation expense = (Cost − Residual value)× (Actual production this period ÷ Estimated total production)
= ($1,410,000 − $141,000)× (125,000 units ÷ 1,000,000 units)= $158,625

Question 20

A company would most likely choose the double-declining balance depreciation method for which of the following long-lived tangible assets?
A)Vehicles
B)Office buildings
C)Warehouses
D)Land improvements

Accepted Answer

Declining-balance methods apply best to assets that are most productive when they are new but quickly lose their usefulness as they get older.

Quiz 9: Long-Lived Tangible and Intangible Assets

On January 1,Weldon Weston Co.purchased equipment for $250,000.It has an estimated useful life of five years and its residual value is $25,000.The company has a calendar year-end.Using the straight-line method,depreciation expense for the first year of its life equals:

Which of the following statements about straight-line depreciation is correct?

Which of the following is not an amount that is needed to calculate straight-line depreciation?

Heatherbrae Co.uses the units-of-production method to estimate depreciation.The company purchased a new machine for $45,000 that will produce an estimated 100,000 units over its useful life.The estimated residual value of the machine is $5,000.What is the depreciation rate per unit?

One difference between the double-declining-balance method and the straight-line method is that the double-declining-balance method:

Which of the following statements is correct when the straight-line method is used to compute depreciation?

At the end of the first year of an asset's life,the declining-balance depreciation:

Which of the following statements about the end of an asset's life is correct?

Holly,Inc.has a building that originally cost $562,500.Holly expects to be able to sell the facility for $160,500 at the end of its useful life.The balance of the related Accumulated Depreciation account is $387,000.The depreciable cost of the facility is:

Martin Company's building has a 20-year useful life and a residual value equal to 20% of the building's original cost.If the double-declining balance method is used,what depreciation rate would be used?

Avalon Industries buys equipment for $24,000,expects to use it for ten years,and then sell it for $3,000.Using the straight-line method,the company should report annual depreciation for the equipment of:

A company would most likely choose the double-declining balance depreciation method for which of the following long-lived tangible assets?