Question 1

Salvage value is not the same as

Accepted Answer

Salvage value is synonymous with residual value, disposal value, and scrap value, all referring to the estimated value of an asset at the end of its useful life. Carrying value, however, is the asset's cost minus its accumulated depreciation, which is a different concept.

Question 2

All of the following are used in estimating a depreciable asset's useful life except

Accepted Answer

The useful life required by the government for tax purposes is not a relevant factor in estimating a depreciable asset's useful life. Factors such as the asset's present condition, experience with similar assets, and current technology and industry trends are all important in determining the useful life of a depreciable asset.

Question 3

All of the following are needed for the computation of depreciation except

Accepted Answer

Current market value is not needed for the computation of depreciation as it is based on the cost of the asset, the estimated useful life of the asset and the residual value.

Question 4

Which of the following most appropriately describes depreciation?

Accepted Answer

Depreciation is the gradual allocation of the cost of a plant asset over periods of usefulness. It represents the decline in the value of the asset due to wear and tear, physical deterioration, and technological advancements that make the asset obsolete. However, only option B accurately describes the accounting treatment of depreciation, which is to spread the cost of an asset over its useful life, rather than to record the actual decline in value.

Question 5

Equipment was purchased for $117,000.It had an estimated residual value of $18,000 and has a current carrying value of $75,000.Its depreciable cost must have been

Accepted Answer

Depreciable cost is the original cost of the asset minus its estimated residual value. Therefore, depreciable cost = $117,000 - $18,000 = $99,000. The carrying value of the asset ($75,000) does not impact the calculation of the depreciable cost.

Question 6

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. By using accelerated depreciation, more depreciation expense is recognized in the early years of an asset's useful life, which matches the higher level of revenue the asset generates in those years.

Question 7

A company purchases land and a building on the land.The land is appraised at $96,000 and the building at $384,000.If the Land account is debited for $124,800,then the total purchase price for the land and building must have been

Accepted Answer

The land is appraised at 20% of the total appraised value ($96,000 / $480,000). If the Land account is debited for $124,800, this represents 20% of the total purchase price, making the total purchase price $624,000 ($124,800 / 0.20).

Question 8

A truck is purchased for $70,000.It has a five-year life and a $10,000 residual value.Under the double-declining-balance method,what is the accumulated depreciation after two years?

Accepted Answer

The double-declining-balance method is a method of depreciation where depreciation is charged at twice the rate of straight-line depreciation. 
First, we need to find the depreciation rate per year: 
Depreciation rate = 2 / 5 = 0.4 
In the first year, the depreciation expense is: 
Depreciation expense year 1 = $70,000 x 0.4 = $28,000 
The book value at the end of year 1 is: 
Book value year 1 = $70,000 - $28,000 = $42,000 
In the second year, the depreciation expense is: 
Depreciation expense year 2 = $42,000 x 0.4 = $16,800 
The accumulated depreciation after two years is: 
Accumulated depreciation year 2 = $28,000 + $16,800 = $44,800. 
Therefore, the answer is C.

Question 9

Which of the following would not be a basis for estimating the useful life of a piece of equipment?

Accepted Answer

Historical cost is not a relevant factor in estimating the useful life of equipment. The useful life of equipment depends on its physical condition, technological advancements, maintenance, and obsolescence. Potential production in units, potential hours of service, and years of service are all relevant factors in determining the useful life of equipment.

Question 10

The expensing of a long-lived asset such as a wastebasket is justified by which of the following accounting rules or principles?

Accepted Answer

The materiality principle allows for the expensing of small, low-cost items like a wastebasket immediately rather than capitalizing and depreciating them over time because their cost is not significant enough to impact financial decisions.

Question 11

Oswald purchased land for $48,000 and paid an additional $2,000 to install parking space.The entry to record the payment for the parking space is:

Accepted Answer

The answer of Oswald purchased land for $48,000 and paid...

Question 12

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 method calculates depreciation based on the number of units produced by the machine rather than the passage of time or estimated useful life. It is the most appropriate choice for equipment that produces discrete items, such as a manufacturing or printing machine.

Question 13

The Equipment account would include all of the following costs except

Accepted Answer

Maintenance costs are considered operational expenses and are not capitalized as part of the equipment cost on the balance sheet. Installation costs, equipment test runs, and freight charges are capitalized as they are necessary to bring the asset to a condition and location ready for use.

Question 14

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

Accepted Answer

Accelerated depreciation is used to decrease the value of an asset more quickly for tax purposes. This is typically done when an asset is expected to experience greater wear and tear or obsolescence in its earlier years. Therefore, using accelerated depreciation to account for increasing use of an asset over the years would not make sense.

Question 15

A truck 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 truck is purchased for $70,000.It has...

Question 16

The cost of tearing down a building on land just purchased should be

Accepted Answer

The cost of tearing down a building on land just purchased is considered part of the land preparation costs and should be debited to the Land account, as it increases the value of the land itself.

Question 17

The depreciable cost of an asset is

Accepted Answer

Depreciable cost of an asset is calculated as the original cost of the asset minus its residual value (if any). It represents the portion of the asset's cost that is depreciated over its useful life. Option A is incorrect as unexpired cost is not a commonly used accounting term. Option C is incorrect as expired cost does not represent the cost that is yet to be depreciated. Option D is incorrect as accumulated depreciation is a contra account that reduces the original cost of the asset, it does not represent the depreciable cost.

Question 18

If an asset costs $41,000,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 of depreciation involves doubling the straight-line rate of depreciation. For an asset with a useful life of 5 years, the straight-line depreciation rate is 20% (100% / 5 years). Doubling this gives a depreciation rate of 40% per year. In the first year, the depreciation expense is 40% of $41,000, which is $16,400. This leaves a book value of $24,600 ($41,000 - $16,400) at the end of the first year. In the second year, the depreciation expense is 40% of $24,600, which is $9,840. Therefore, the correct entry is a debit to Depreciation Expense and a credit to Accumulated Depreciation for $9,840.

Question 19

A machine was purchased for $50,000.It has a current carrying value of $32,500 and had a depreciable cost of $45,000.Its estimated residual value must have been

Accepted Answer

The estimated residual value is the difference between the original cost ($50,000) and the depreciable cost ($45,000), which equals $5,000.

Question 20

Gomez Company purchases a piece of equipment on Jan.2,2014,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 2014,using the straight-line method,is

Accepted Answer

To calculate straight-line depreciation, we need to determine the depreciable cost of the asset. The depreciable cost is the cost of the asset minus its residual value, divided by its useful life.

Depreciable cost = ($30,000 - $3,000) / 8 = $3,375 per year

Therefore, the entry to record the annual depreciation expense would be:

Debit Depreciation Expense $3,375 
Credit Accumulated Depreciation $3,375

This entry reduces the net value of the asset by $3,375 and accumulates that amount in the Accumulated Depreciation account. This continues every year until the asset is fully depreciated or disposed of.

Quiz 10: Long -Term Assets