Question 1

The entry to record the sale of equipment costing $80,000,with accumulated depreciation of $68,000 and sale price of $17,600,is:

Accepted Answer

The sale of equipment results in a gain, which is calculated by subtracting the accumulated depreciation from the sale price. Therefore, the journal entry should include Cash (the amount received from the sale), Accumulated Depreciation (to remove the amount of depreciation on the equipment), Equipment (to remove the equipment from the books), and Gain on Sale of Equipment (to record the amount of gain). The correct entry would be:
Cash 17,600
Accumulated Depreciation- Equipment 68,000
Equipment 80,000
Gain on Sale of Equipment 5,600

Question 2

When an asset is sold,a gain is calculated as the difference between

Accepted Answer

The gain on the sale of an asset is calculated as the difference between the sale price and the carrying value (also known as the book value or net book value) of the asset sold. This is because the carrying value reflects the accumulated depreciation or amortization of the asset, which represents the amount of the asset's cost that has been expensed over its useful life. Therefore, the gain on the sale of an asset represents the amount by which the sale price exceeds the remaining value of the asset on the company's books. Choice A is incorrect because the depreciable cost is not the same as the carrying value, as it does not reflect depreciation that has already been taken. Choice C is incorrect because the residual value may or may not be the same as the carrying value, depending on the company's accounting policies. Choice D is incorrect because the original cost is not relevant to the calculation of the gain on the sale of an asset.

Question 3

An asset was purchased for $200,000.It had an estimated residual value of $40,000 and an estimated useful life of ten years.After four years of use,the estimated residual value is revised to $28,000.Assuming straight-line depreciation,depreciation expense in year 5 of use would be

Accepted Answer

Depreciation expense = (Cost - Residual value) / Useful life= (200,000 - 28,000) / 10= 172,000 / 10= $17,200

Question 4

On January 1,a machine with a useful life of five years and a residual value of $6,000 is purchased for $30,000.What is the depreciation expense in year 3 under straight-line depreciation?

Accepted Answer

The formula for straight-line depreciation is:

Depreciation Expense = (Cost - Residual Value) / Useful Life

In this case, the cost is $30,000, the residual value is $6,000, and the useful life is 5 years. So, the annual depreciation expense would be:

Depreciation Expense = ($30,000 - $6,000) / 5 years = $4,800 per year

To calculate the depreciation expense in year 3, we simply multiply the annual depreciation expense by the number of years:

Depreciation Expense in Year 3 = $4,800 x 3 = $14,400

Therefore, the correct choice is B) $4,800.

Question 5

If an asset costs $70,000,has a residual value of $6,000,and has a useful life of five years,the entry to record depreciation in the second year,using the double-declining-balance method,is:

Accepted Answer

The double-declining-balance method calculates depreciation by doubling the straight-line rate. In the first year, the depreciation is 2*(1/5)*$70,000 = $28,000. In the second year, the book value is $70,000 - $28,000 = $42,000, so the depreciation is 2*(1/5)*$42,000 = $16,800.

Question 6

A piece of equipment is purchased for $70,000.It has a five-year life and a $10,000 residual value.Under the straight-line method,what is the asset's carrying value after three years?

Accepted Answer

The answer of A piece of equipment is purchased for...

Question 7

Equipment is purchased for $80,000.It has an eight-year useful life and a $39,250 residual value.Under the double-declining-balance method,what is the depreciation expense for year 3?

Accepted Answer

To calculate depreciation under double-declining-balance method, the following formula is used:

Depreciation Expense = (2 / Useful life) × Book value at the beginning of the period

In this case, the depreciable cost is the original cost minus the residual value:

Depreciable cost = $80,000 - $39,250 = $40,750

The book value (or carrying value) at the beginning of year 3 is the original cost minus the accumulated depreciation for the first 2 years:

Year 1 depreciation = (2 / 8) × $80,000 = $20,000
Year 2 depreciation = (2 / 8) × ($80,000 - $20,000) = $15,000
Accumulated depreciation at the end of year 2 = $20,000 + $15,000 = $35,000

Book value at the beginning of year 3 = $80,000 - $35,000 = $45,000

Now we can calculate the depreciation expense for year 3:

Depreciation expense = (2 / 8) × $45,000 = $11,250

Therefore, the answer is C) $5,750.

Question 8

Equipment is purchased for $120,000.It has a five-year useful life and a $20,000 residual value.Under the double-declining-balance method,what is the depreciation expense for year 3?

Accepted Answer

The double-declining-balance method calculates depreciation expense as a percentage of the book value of the asset. The book value is the original cost of the asset minus the accumulated depreciation. For the first year, the depreciation expense is 40% of the original cost, or $48,000. For the second year, the depreciation expense is 40% of the book value at the beginning of the year, or $33,600. For the third year, the depreciation expense is 40% of the book value at the beginning of the year, or $23,040.

Question 9

A company purchases for $24,000 an asset that has a useful life of six years and no salvage value.After two years,the company spends $4,000 for a major overhaul that will extend the machine's useful life four years beyond the original six.Assuming straight-line depreciation,how much depreciation should be taken in year 3?

Accepted Answer

The total depreciable cost of the asset is $24,000 since there is no salvage value. Using straight-line depreciation, the annual depreciation is calculated by dividing the total depreciable cost by the useful life, which is 6 + 4 = 10 years after the major overhaul. Therefore, the annual depreciation is $24,000 / 10 = $2,400 per year. 
For year 3, the asset has been in use for a total of 2 + 1 = 3 years. Therefore, the accumulated depreciation is 3 x $2,400 = $7,200. The depreciation expense for year 3 is calculated as the difference between the total annual depreciation and the accumulated depreciation to date, which is $2,400 - ($7,200 - $2,400) = $2,500. 
Hence the answer is (B) $2,500.

Question 10

Equipment costing $60,000 with a residual value of $6,000 and an estimated life of eight years has been depreciated using the straight-line method for two years.Assuming a revised estimated total life of five years,the depreciation expense for year 3 would be

Accepted Answer

To calculate depreciation expense for year 3, we first need to determine the remaining depreciable amount of the equipment. 
Original cost = $60,000
Residual value = $6,000
Depreciable amount = $60,000 - $6,000 = $54,000

The equipment has been depreciated for 2 years using the straight-line method, so the accumulated depreciation is:
Depreciation per year = Depreciable amount / Estimated life = $54,000 / 8 = $6,750
Accumulated depreciation = Depreciation per year x Years depreciated = $6,750 x 2 = $13,500

If we revise the estimated total life to 5 years, then the remaining depreciable amount would be:
Remaining life = Estimated life - Years depreciated = 5 - 2 = 3
Remaining depreciable amount = Depreciable amount - Accumulated depreciation = $54,000 - $13,500 = $40,500

The depreciation expense for year 3 can now be calculated using the straight-line method:
Depreciation per year = Remaining depreciable amount / Remaining life = $40,500 / 3 = $13,500

Therefore, the answer is C) $13,500.

Question 11

McMinn,Inc.purchased equipment for $100,000.The equipment had an estimated useful life of eight years and an estimated residual value of $12,000.After five years of use,the estimated residual value is changed to $18,000.Assuming straight-line depreciation,depreciation expense in year 6 would be

Accepted Answer

The answer of McMinn,Inc.purchased equipment for $100,000.The equipment had an...

Question 12

Danny's Delivery Service purchased a delivery van for $30,000.The van had an estimated useful life of six years and an estimated residual value of $6,000.After four years of use,the total estimated useful life is revised to seven years.Assuming straight-line depreciation,depreciation expense in year 5 would be

Accepted Answer

The correct answer is A because the depreciation expense for year 5 would be $2,667. This is calculated by taking the cost of the van ($30,000) minus the residual value ($6,000) and dividing by the revised estimated useful life (7 years). This gives us an annual depreciation expense of $3,429. To find the depreciation expense for year 5, we multiply the annual depreciation expense by the number of years the van has been used (5 years). This gives us a depreciation expense for year 5 of $2,667.

Question 13

A building was purchased for $460,000.It currently has accumulated depreciation of $80,000 and had a residual value of $100,000.Assuming the use of straight-line depreciation,its estimated useful life must have been

Accepted Answer

The answer of A building was purchased for $460,000.It currently...

Question 14

A delivery truck was purchased for $32,000 two years ago.It has a carrying value of $24,000 and an estimated residual value of $4,000.Assuming the use of straight-line depreciation,the truck's estimated useful life must have been

Accepted Answer

The carrying value of the truck after two years is $24,000, which means that $8,000 in depreciation expense has been taken over two years ($32,000 - $24,000 = $8,000).

To determine the estimated useful life of the truck, we can use the formula:

(Cost - Residual Value) / Estimated Useful Life = Annual Depreciation Expense

Plugging in the numbers we have:

($32,000 - $4,000) / Estimated Useful Life = $8,000 / 2 years

Simplifying this equation gives:

Estimated Useful Life = ($28,000 / $8,000) * 2 years

Estimated Useful Life = 7 years

Therefore, the estimated useful life of the truck must have been seven years.

Question 15

Hickman Company purchases a piece of equipment on Jan.2,2013,for $60,000.The equipment has an estimated life of eight years or 50,000 units of production and an estimated residual value of $6,000.Hickman uses a calendar fiscal year.The entry to record the amount of depreciation for 2013,using the production method and assuming that 6,100 units are produced,is:

Accepted Answer

The answer of Hickman Company purchases a piece of equipment...

Question 16

Hickman Company purchases a piece of equipment on Jan.2,2013,for $60,000.The equipment has an estimated life of eight years or 50,000 units of production and an estimated residual value of $6,000.Hickman uses a calendar fiscal year.The entry to record the amount of depreciation for 2013,using the straight-line method,is:

Accepted Answer

To calculate depreciation using the straight-line method, we need to subtract the residual value from the cost of the asset and then divide that by the estimated life or units of production.

In this case, the calculation would be: 
($60,000 - $6,000) / 8 years = $6,750 per year

Therefore, the correct entry to record depreciation expense for 2013 would be: 
Depreciation Expense - Equipment $6,750 
Accumulated Depreciation - Equipment $6,750

Option A is incorrect because it only records half of the depreciation expense for 2013. 
Option C is incorrect because it assumes the equipment will produce the same amount of units each year, which may not be the case. 
Option D is incorrect because it does not record the depreciation expense, only the accumulated depreciation.

Question 17

A building was purchased for $500,000.It has accumulated depreciation of $80,000 and had a residual value of $100,000.Assuming the use of straight-line depreciation,its estimated useful life must have been

Accepted Answer

The answer of A building was purchased for $500,000.It has...

Question 18

On January 1,a machine with a useful life of five years and a residual value of $6,000 is purchased for $30,000.What is the depreciation expense in year 2 using the double-declining-balance method?

Accepted Answer

The double-declining-balance method depreciates an asset at twice the straight-line rate. The straight-line rate is calculated by dividing the depreciable cost (cost - residual value) by the useful life. In this case, the depreciable cost is $30,000 - $6,000 = $24,000 and the useful life is 5 years. Therefore, the straight-line rate is $24,000 / 5 = $4,800. The double-declining-balance rate is twice the straight-line rate, or $4,800 * 2 = $9,600. The depreciation expense in year 2 is the double-declining-balance rate multiplied by the book value of the asset at the beginning of the year. The book value of the asset at the beginning of year 2 is $30,000 - $9,600 = $20,400. Therefore, the depreciation expense in year 2 is $9,600 * $20,400 = $7,200.

Question 19

Hickman Company purchases a piece of equipment on Jan.2,2013,for $60,000.The equipment has an estimated life of eight years or 50,000 units of production and an estimated residual value of $6,000.Hickman uses a calendar fiscal year.The entry to record the amount of depreciation for 2013,using the double-declining-balance method,is:

Accepted Answer

The double-declining-balance method calculates depreciation by doubling the straight-line rate. The straight-line rate is 1/8 = 12.5%. Double that is 25%. Depreciation for 2013 is 25% of $60,000 = $15,000.

Question 20

A truck is purchased for $35,000.It has a five-year life and a $5,000 residual value.Under the double-declining-balance method,what is the accumulated depreciation after two years?

Accepted Answer

Under the double-declining-balance method, the depreciation rate is twice as the straight-line method. Therefore, the depreciation rate for the truck is 40% (100%/5 years x 2 = 40%).

In the first year, the depreciation expense would be $14,000 (40% x $35,000). The book value of the truck at the end of the first year would be $21,000 ($35,000 - $14,000).

In the second year, the depreciation expense is calculated as 40% of the book value at the beginning of the year, which is $8,400 (40% x $21,000). The accumulated depreciation after two years would be the sum of the depreciation expenses for the two years, which is $14,000 + $8,400 = $22,400. Therefore, the answer is C).

Quiz 10: Long Term Assets