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 double-declining-balance method,is:

Accepted Answer

The double-declining-balance method involves applying a depreciation rate that is twice the straight-line rate to the net book value of the asset. The net book value is the cost of the asset less the accumulated depreciation.

To calculate the double-declining-balance rate, divide 100% by the estimated useful life of the asset in years and then multiply by two. The depreciation expense for the current year is then calculated by multiplying the double-declining-balance rate by the net book value at the beginning of the year.

For this problem, the calculation for the double-declining-balance rate is:
100%/8 years x 2 = 25%

The net book value of the equipment at the beginning of 2010 is:
$30,000 cost - $0 accumulated depreciation = $30,000 net book value

Using the 25% double-declining-balance rate, the depreciation expense for 2010 is:
$30,000 net book value x 25% = $7,500

The entry to record the depreciation for 2010 is:
Depreciation Expense - Equipment          $7,500
Accumulated Depreciation - Equipment   $7,500

Question 2

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

Accepted Answer

Accelerated depreciation accounting is a method of depreciation that records a higher depreciation expense in the initial years of an asset's useful life and lower depreciation expense in the later years. This method is based on the matching principle, which requires companies to match expenses with the revenues they generate. Accelerated depreciation accounting allows companies to match a higher depreciation expense with higher revenues generated by the asset in the earlier years of its useful life, ensuring that expenses are matched with the appropriate revenues. Therefore, the best accounting principle that justifies accelerated depreciation accounting is the matching principle.

Question 3

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

Accepted Answer

The most logical depreciation method for a machine that produces discrete units is the production method. This is because the machine's usefulness is determined by the number of units it produces, rather than just the passage of time or wear and tear on the machine itself. The production method takes into account the number of units produced and depreciates the value of the machine accordingly.

Question 4

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 5

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 by dividing the depreciable cost (cost - residual value) by the useful life. 
Depreciable cost = $15,000 - $3,000 = $12,000
Annual depreciation expense = $12,000 / 5 years = $2,400
In year 3, the machine has already been depreciated for 2 years, so the depreciation expense for year 3 would be:
Year 3 depreciation expense = $2,400 x 1 year = $2,400. 
Therefore, the correct answer is B.

Question 6

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

To calculate depreciation using the production method, the formula is:

Depreciation per unit = (Cost - Residual value) / Estimated units of production

Then, the depreciation expense for the period is calculated as:

Depreciation expense = Depreciation per unit x Actual units of production for the period

In this case,

Depreciation per unit = ($30,000 - $3,000) / 50,000 = $0.54
Depreciation expense = $0.54 x 6,100 = $3,294

Therefore, the entry to record depreciation for 2010 is:

Depreciation Expense - Equipment         3,294
Accumulated Depreciation - Equipment  3,294

Option C is the only one that matches this entry.

Question 7

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 8

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

The straight-line method of depreciation allocates an equal amount of depreciation expense to each year of the asset's life.

The truck has a cost of $35,000 and a residual value of $5,000, so the depreciable base is $30,000 ($35,000 - $5,000).

The annual depreciation expense is calculated as $30,000 ÷ 5 years = $6,000 per year.

After three years, the accumulated depreciation would be $6,000/year x 3 years = $18,000.

The carrying value (or book value) is calculated as the original cost minus accumulated depreciation, so the carrying value after three years would be $35,000 - $18,000 = $17,000.

Therefore, the best choice is B) $17,000 as it is the correct carrying value after three years using the straight-line method of depreciation.

Question 9

Accelerated depreciation assumes all of the following except that

Accepted Answer

Accelerated depreciation assumes that assets provide more benefit in the early years, that obsolescence makes them less valuable in later years, and that repair expenses are greater in later years. However, it does not assume that asset benefit increases with each year of use. In fact, accelerating depreciation assumes the opposite- that an asset's usefulness and value declines over time.

Question 10

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...

Question 11

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 12

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

The formula for straight-line depreciation is (cost-residual value)/useful life. In this case, (30,000-3,000)/8 = $3,375. Since this is the amount of depreciation expense for the year, it is recorded as a debit to Depreciation Expense - Equipment and a credit to Accumulated Depreciation - Equipment.

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

First, we need to calculate the straight-line depreciation rate, which is (cost-residual value)/useful life = ($80,000-$39,250)/8 = $5,781.25 per year.
Next, we need to calculate the double-declining-balance rate, which is 2/useful life = 2/8 = 0.25 or 25%.
For year 3, we need to calculate the beginning book value, which is the cost minus accumulated depreciation for the first two years: $80,000 - 2($80,000 x 0.25) = $80,000 - $40,000 = $40,000.
Using the double-declining-balance method, depreciation for year 3 is calculated as the beginning book value times the double-declining-balance rate: $40,000 x 0.25 = $10,000.
However, we need to adjust this amount to ensure that the total depreciation over the useful life is equal to the cost minus the residual value. Therefore, we need to calculate the depreciation expense for the last year of the equipment's life (year 8) using the straight-line method:
Depreciation expense for year 8 = (cost-residual value)-total depreciation in all prior years = ($80,000-$39,250)-($5,781.25 x 7) = $1,376.75
Now we can calculate the adjusted depreciation expense for year 3:
Adjusted depreciation expense for year 3 = (cost-residual value)-total depreciation in all prior years-depreciation in year 8 = ($80,000-$39,250)-($5,781.25 x 2)-$1,376.75 = $5,749.75 (rounded to nearest dollar)
Therefore, the correct answer is C, $5,750.

Question 14

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 15

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 answer of If an asset costs $35,000,has a residual...

Question 16

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

Accepted Answer

Double-declining-balance method initially ignores residual value and depreciates an asset based on a fixed rate applied to the asset's book value. However, once the depreciation expense calculated by the method for a given year exceeds the amount necessary to fully depreciate the asset, the excess (i.e., the residual value) is accounted for and the asset is depreciated only to its residual value.

Question 17

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 18

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 straight-line depreciation method means the asset's cost is evenly spread over its useful life.

To find the estimated useful life, we need to calculate the total depreciation: 
Total depreciation = Cost - Residual value 
Total depreciation = $32,000 - $4,000 
Total depreciation = $28,000

Since the asset was purchased 2 years ago and currently has a carrying value of $24,000, the accumulated depreciation must be: 
Accumulated depreciation = Cost - Carrying value 
Accumulated depreciation = $32,000 - $24,000 
Accumulated depreciation = $8,000

Now we can calculate the annual depreciation: 
Annual depreciation = Total depreciation / Useful life 
$8,000 = $28,000 / Useful life 
Useful life = $28,000 / $8,000 
Useful life = 3.5

Therefore, the estimated useful life is 3.5 years, but since it's given in whole years, the answer is 7 years (B).

Question 19

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

Accepted Answer

Accelerated depreciation is used to write off the cost of an asset faster than traditional methods. This is typically done for tax purposes, but the reasons for using accelerated depreciation can vary. Greater efficiency of assets when new, rapid changes in technology, and increasing repair costs in later years are all valid reasons for using accelerated depreciation. However, increasing use of an asset over the years is not a valid reason, as depreciation is meant to reflect the decrease in value of an asset over time, not an increase in usage.

Question 20

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.

Quiz 9: Long Term Assets