Question 1

Lester Company purchases a piece of equipment on Jan.2,2010,for $30,000.The equipment has an estimated life of eight years or 50,000 units of production and an estimated residual value of $3,000.Lester uses a calendar fiscal year.The entry to record the amount of depreciation for 2010,using the production method and assuming that 6,100 units are produced,is:

Accepted Answer

The formula for calculating depreciation using the production method is:
Depreciation per unit = (Cost of Asset - Residual Value)/Estimated Units of Production
Depreciation expense for the year = Depreciation per unit x Actual Units Produced
Depreciation per unit = ($30,000 - $3,000)/50,000 = $0.54
Depreciation expense for the year = $0.54 x 6,100 units produced = $3,294
Therefore, the correct entry to record depreciation for the year using the production method is:
Depreciation Expense - Equipment $3,294
Accumulated Depreciation - Equipment $3,294

Question 2

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

Straight-line depreciation is calculated by taking the cost of the asset minus the estimated residual value and dividing by the estimated useful life.

In this case:

$32,000 - $4,000 = $28,000
$28,000 / X = $8,000 per year

Solving for X:

$8,000 X = $28,000
X = 3.5 years

Therefore, the estimated useful life of the truck was 7 years (since it has already been used for 2 years).

Question 3

Which of the following is irrelevant in computing a machine's depreciation expense using the production method?

Accepted Answer

The production method of depreciation (also known as the units of production method) calculates depreciation based on the actual usage or production of the asset rather than the passage of time. Therefore, the estimated useful life in years (C) is irrelevant to this calculation, as it focuses on the actual units produced or the asset's usage.

Question 4

A machine was purchased for $40,000.It has a current carrying value of $26,000 and had a depreciable cost of $36,000.Its estimated residual value must have been

Accepted Answer

The estimated residual value is the value of the asset at the end of its useful life, and it is used to calculate depreciation.

Since the depreciable cost of the machine was $36,000 ($40,000 - $4,000), and its current carrying value is $26,000, the accumulated depreciation is $10,000 ($36,000 - $26,000).

Therefore, the estimated residual value must have been $4,000 ($10,000 + $4,000 = $14,000, which is the depreciable cost minus the current carrying value).

Therefore, the correct answer is A.

Question 5

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).

Question 6

A truck is purchased for $35,000.It has a five-year life and a $5,000 residual value.Under the straight-line method,what is the asset's carrying value after three years?

Accepted Answer

Using the straight-line method, the asset will depreciate by the same amount each year. 
Depreciation per year = (35,000 - 5,000) / 5 = $6,000
After three years, the asset's carrying value will be:
Carrying value = 35,000 - (3 x 6,000) = $17,000. Therefore, the best choice is B.

Question 7

All of the following are possible reasons for using accelerated depreciation except

Accepted Answer

Accelerated depreciation is used to show a larger expense in the early years of an asset's life, and a lower expense in later years. This is typically done to reflect the declining usefulness or value of the asset as it ages. Therefore, increasing use of an asset over the years is not a valid reason for using accelerated depreciation. A, B, and C are all valid reasons for using accelerated depreciation.

Question 8

A graph depicting yearly depreciation expense under an accelerated depreciation method will contain a line that goes

Accepted Answer

The answer of A graph depicting yearly depreciation expense under...

Question 9

Lester Company purchases a piece of equipment on Jan.2,2010,for $30,000.The equipment has an estimated life of eight years or 50,000 units of production and an estimated residual value of $3,000.Lester uses a calendar fiscal year.The entry to record the amount of depreciation for 2010,using the double-declining-balance method,is:

Accepted Answer

The double-declining-balance method is an accelerated depreciation method that results in higher depreciation expense in earlier years of the asset's life.

To calculate depreciation expense using the double-declining-balance method, you first calculate the straight-line rate, which is (1/expected life). In this case, the straight-line rate is (1/8), or 0.125.

Next, to calculate the double-declining-balance rate, you multiply the straight-line rate by 2. In this case, the double-declining-balance rate is 0.125 x 2 = 0.25.

Finally, to calculate the depreciation expense for the year, you multiply the beginning book value of the asset by the double-declining-balance rate. The beginning book value is the original cost of the asset minus any accumulated depreciation.

For the first year of the asset's life, the beginning book value is $30,000, and there is no accumulated depreciation, so the depreciation expense for 2010 is:

Depreciation expense = Beginning book value x Double-declining-balance rate
Depreciation expense = $30,000 x 0.25
Depreciation expense = $7,500

Therefore, the correct entry to record the amount of depreciation for 2010 using the double-declining-balance method is:

Depreciation Expense - Equipment                                      7,500
Accumulated Depreciation - Equipment                              7,500

Question 10

Lester Company purchases a piece of equipment on Jan.2,2010,for $30,000.The equipment has an estimated life of eight years or 50,000 units of production and an estimated residual value of $3,000.Lester uses a calendar fiscal year.The entry to record the amount of depreciation for 2010,using the straight-line method,is:

Accepted Answer

To calculate depreciation using the straight-line method, we need to divide the depreciable cost of the asset by its estimated life.

Depreciable cost = Cost of equipment - Residual value
= $30,000 - $3,000
= $27,000

Annual depreciation expense = Depreciable cost / Estimated life
= $27,000 / 8 years
= $3,375

Therefore, the journal entry to record depreciation expense for 2010 using the straight-line method would be:

Depreciation Expense - Equipment 3,375
Accumulated Depreciation - Equipment 3,375

Option B is the correct answer.

Question 11

Which of the following depreciation methods is the most logical for a machine that produces discrete (i.e.,separate)units?

Accepted Answer

Production depreciation method is the most logical for a machine that produces discrete (separate) units, as it takes into account the number of units produced and allocates the overall cost of the machine accordingly. This method is best suited for assets that are used to produce goods, such as manufacturing equipment. The double-declining-balance method is accelerated, and the straight-line method is best suited for assets that have a consistent and predictable reduction in value over time. The group method is used when assets are similar and have the same useful life, which may not be applicable to this scenario.

Question 12

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 13

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 expense using the double-declining-balance method, you first need to determine the straight-line depreciation rate. This is calculated by dividing 100% by the useful life of the asset in years. In this case, the straight-line depreciation rate is 100%/8 = 12.5%.

Next, you double the straight-line depreciation rate to get the DDB rate. In this case, the DDB rate is 25%.

To calculate the depreciation expense for year 3, you start with the beginning book value of the asset. This is the original cost of $80,000 minus any accumulated depreciation from previous years. In year 2, the depreciation expense was $20,000, so the accumulated depreciation at the beginning of year 3 is $20,000 x 2 = $40,000. Therefore, the beginning book value for year 3 is $80,000 - $40,000 = $40,000.

You then multiply the beginning book value by the DDB rate of 25% to get the depreciation expense for the year. In this case, the depreciation expense for year 3 is $40,000 x 25% = $10,000. However, you also need to make sure that the depreciation expense does not bring the book value of the asset below its residual value of $39,250. So, you would subtract the residual value from the depreciation expense to get the actual depreciation expense for year 3: $10,000 - $39,250 = -$29,250. Since this would result in a negative book value, the depreciation expense for year 3 should be limited to an amount that would bring the book value to the residual value. This amount is $40,000 - $39,250 = $750. Therefore, the correct answer is $750 per year 3.

Question 14

Which of the following accounting principles best justifies accelerated depreciation accounting?

Accepted Answer

The matching principle requires that expenses be recognized in the same period as the related revenue. Accelerated depreciation allows for larger depreciation expenses in the early years of an asset's life, which matches those expenses with the higher revenues the asset generates during those years.

Question 15

On January 1,a machine with a useful life of five years and a residual value of $3,000 is purchased for $15,000.What is the depreciation expense in year 2 using the double-declining-balance method?

Accepted Answer

The answer of On January 1,a machine with a useful...

Question 16

If an asset costs $35,000,has a residual value of $3,000,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 expense as a percentage of the asset's book value, which is the asset's cost minus accumulated depreciation. The percentage used is twice the straight-line depreciation rate, which is calculated as (1 / useful life) * 100%. In this case, the straight-line depreciation rate is (1 / 5) * 100% = 20%. The double-declining-balance depreciation rate is therefore 2 * 20% = 40%.The book value of the asset at the beginning of the second year is $35,000 - $8,400 = $26,600. The depreciation expense for the second year is therefore $26,600 * 40% = $8,400. The entry to record this depreciation expense is:Depreciation Expense - Asset 8,400Accumulated Depreciation - Asset 8,400

Question 17

Accelerated depreciation assumes all of the following except that

Accepted Answer

Accelerated depreciation assumes that the asset provides more benefit in the early years, obsolescence makes an asset less valuable in its later years, and repair expense is less in the early years than in the later years. It does not assume that the asset benefit increases with each year of use, but rather that the value of the asset decreases over time.

Question 18

On January 1,a machine with a useful life of five years and a residual value of $3,000 is purchased for $15,000.What is the depreciation expense in year 3 under straight-line depreciation?

Accepted Answer

Under straight-line depreciation, the annual depreciation expense is calculated as (purchase price - residual value) / useful life. 
Thus, the annual depreciation expense for this machine is ($15,000 - $3,000) / 5 = $2,400. 
In year 3, the machine will have been used for 3 years, so the depreciation expense in year 3 is 3 x $2,400 = $7,200. 
Therefore, the correct answer is B).

Question 19

Which of the following methods ignores residual value initially but eventually considers it in the calculation of depreciation?

Accepted Answer

The double-declining-balance method ignores residual value initially but eventually considers it in the calculation of depreciation. This is because as the asset ages and its value decreases, the annual depreciation expense calculated using the double-declining-balance method also decreases. Eventually, the asset's book value will be equal to its residual value at the end of its useful life, at which point no further depreciation expense will be recognized.

Question 20

A building was purchased for $230,000.It currently has accumulated depreciation of $40,000 and had a residual value of $50,000.Assuming the use of straight-line depreciation,its estimated useful life must have been

Accepted Answer

The answer of A building was purchased for $230,000.It currently...

Quiz 9: Long Term Assets