Question 1

A gravel pit is purchased for $200,000 and has expected usable gravel equal to 40,000 truck loads,with yearly production as follows (in truck loads): year 1 = 10,500 ;year 2 = 9,600 ;year 3 = 8,300 ;year 4 = 6,700 ;year 5 = 4,900.When all the usable gravel has been extracted,the land can be sold for $30,000.What is the book value of the land after 3 years?

Accepted Answer

The yearly production decreases linearly over the years, so we can find the total amount of gravel extracted after 3 years by:
Total = (10,500 + 9,600 + 8,300) x 3 = 87,900 truck loads

The remaining usable gravel is:
40,000 - 87,900 = -47,900 (negative because there is no more usable gravel left)

Since we can't have negative usable gravel, we assume all the usable gravel has been extracted after 3 years.

The depreciation per year is:
($200,000 - $30,000) / 40,000 = $4.25 per truck load

The book value after 3 years is:
$200,000 - (3 x $4.25 x 40,000) = $79,300

Therefore, the answer is C.

Question 2

A machine is purchased for $10,000 and has an expected life of 8 years,at which time its salvage value is $500.What is the book value at the end of six years using the constant percentage method of depreciation?

Accepted Answer

The constant percentage method of depreciation, also known as the declining balance method, involves calculating depreciation at a constant rate on the book value at the beginning of each year. To find the rate, we use the formula: $1 - (\frac{Salvage\ Value}{Cost})^{\frac{1}{Life\ of\ the\ Asset}}$. Plugging in the given values: $1 - (\frac{500}{10000})^{\frac{1}{8}}$, we get a depreciation rate. Applying this rate annually for 6 years to the initial cost of $10,000 gives us the book value at the end of six years as $1,057.37.

Question 3

A company buys two machines.Machine A is expected to last 14 years and costs $2450.Machine B is expected to last 10 years and costs $Y.Both machines have a salvage value of $1050 and both use the straight line method of depreciation.At the end of the 9^th year,machine A and machine B have a same book value.What is Y?

Accepted Answer

The correct answer is A.The book value of a machine is its cost minus its accumulated depreciation. For machine A, the accumulated depreciation at the end of the 9th year is (2450 - 1050) * 9/14 = $900. For machine B, the accumulated depreciation at the end of the 9th year is (Y - 1050) * 9/10. Since the book values of the two machines are the same at the end of the 9th year, we have:2450 - 900 = Y - 1050 * 9/101550 = Y - 945Y = $6050

Question 4

A piece of equipment costing $50,000 is expected to last 15 years,after which it will have a salvage value of $5000.For the first 3 years,the constant percentage method is used for depreciation with a 20% rate of depreciation.After that,the company switches to the straight line method of depreciation.What is the book value of the equipment 6-years after it was purchased?

Accepted Answer

The answer of A piece of equipment costing $50,000 is...

Question 5

An office machine costing $2000 is being depreciated over 10 years using the constant-percentage method.The book value after 4-years is $480.20.What is the scrap (salvage)value of the machine?

Accepted Answer

The constant-percentage method implies exponential decay. The book value after 4 years is $480.20, and the initial cost is $2000. The depreciation rate can be calculated, and then the scrap value is found by applying this rate over the remaining years to reach the end of the 10-year period. The calculations show that the scrap value is $56.50.

Question 6

An airplane costing $5 million is expected to be flown 800,000 miles over its lifetime of 8 years,at which time it can be sold for $400,000.After 6 years,the book value of the plane using the physical service method is $1.2 million.How many miles is the airplane flown in total over its first 6? (Answer to the nearest mile)

Accepted Answer

We can use the formula for the physical service method of depreciation to find the annual depreciation of the airplane:

Annual Depreciation = (Cost - Salvage Value) / Total Estimated Miles

Annual Depreciation = ($5,000,000 - $400,000) / 800,000 = $5.50 per mile

To find the book value of the airplane after 6 years, we can subtract the total depreciation over 6 years from the cost:

Book Value after 6 years = Cost - (Annual Depreciation x Miles Flown in 6 years)

$1,200,000 = $5,000,000 - ($5.50 x Miles Flown in 6 years)

Miles Flown in 6 years = ($5,000,000 - $1,200,000) / $5.50 = 660,870 miles

Therefore, the airplane is flown 660,870 miles over its first 6 years.

Quiz 7: Business Decisions, Capital Budgeting and Depreciation

A machine is purchased for $10,000 and has an expected life of 8 years,at which time its salvage value is $500.What is the book value at the end of six years using the constant percentage method of depreciation?

An office machine costing $2000 is being depreciated over 10 years using the constant-percentage method.The book value after 4-years is $480.20.What is the scrap (salvage) value of the machine?