Question 1

The double declining balance depreciation method calculates depreciation each year by taking twice the straight line rate times the book value of the asset at the beginning of each year.

Accepted Answer

The statement correctly defines the double declining balance method.

Question 2

Once the useful life of a depreciable asset has been estimated and the amount to be depreciated each year has been determined, the amounts can  not be changed.

Accepted Answer

The estimated useful life and depreciation amount can be revised if there is a change in the expected life or salvage value of the asset. In such cases, the depreciation is recalculated based on the revised estimates.

Question 3

The amount of depreciation expense for the first full year of use of a fixed asset costing $95,000, with an estimated residual value of $5,000 and a useful life of 5 years, is $19,000 by the straight-line method.

Accepted Answer

The answer of The amount of depreciation expense for the...

Question 4

An estimate of the amount which an asset can be sold at the end of its useful life is called residual value.

Accepted Answer

This is correct. Residual value is the estimated amount that an asset can be sold for at the end of its useful life.

Question 5

The amount of the depreciation expense for the second full year of use of a fixed asset costing $100,000, with an estimated residual value of $5,000 and a useful life of 4 years, is $25,000 by the declining-balance method at twice the straight-line rate.

Accepted Answer

The declining-balance method at twice the straight-line rate calculates depreciation expenses as a fixed percentage of the asset's book value each year. The calculation is:

Depreciation rate = (100% / Useful life) x 2 = (100% / 4 years) x 2 = 50%
Depreciation expense year 1 = Book value at beginning of year x Depreciation rate = $100,000 x 50% = $50,000
Book value at end of year 1 = $100,000 - $50,000 = $50,000
Depreciation expense year 2 = Book value at beginning of year x Depreciation rate = $50,000 x 50% = $25,000

Therefore, the depreciation expense for the second full year of use is $25,000 by the declining-balance method at twice the straight-line rate, which makes the statement true.

Question 6

For income tax purposes most companies use an accelerated deprecation method called double declining balance.

Accepted Answer

The answer of For income tax purposes most companies use...

Question 7

Residual value is  not incorporated in the initial calculations for double-declining-balance depreciation.

Accepted Answer

Residual value is not considered in the calculation of double-declining-balance depreciation.

Question 8

When minor errors occur in the estimates used in the determination of depreciation, the amounts recorded for depreciation expense in the past should be corrected.

Accepted Answer

Minor errors in estimates used to calculate depreciation do not require correction of past depreciation expenses. However, the estimates should be revised going forward to ensure accurate depreciation expense in future periods. Only material errors require restating past financial statements.

Question 9

It is not necessary for a company to use the same depreciation method for financial statements and for determining income taxes.

Accepted Answer

The IRS allows companies to use different depreciation methods for income tax purposes compared to financial reporting. This is because the IRS has its own tax rules and regulations that may differ from generally accepted accounting principles (GAAP) used for financial statement reporting.

Question 10

When depreciation estimates are revised, all years of the asset's life are affected.

Accepted Answer

When depreciation estimates are revised, it affects the depreciation expense calculation from the point of revision forward, not the years that have already passed.

Question 11

The normal balance of the accumulated depreciation account is debit.

Accepted Answer

The answer of The normal balance of the accumulated depreciation...

Question 12

Assets may be grouped according to common traits and depreciated by using a single composite rate.

Accepted Answer

Assets can be classified based on their characteristics such as useful life, method of acquisition, or type of asset. Assets with similar traits can be grouped together and depreciated using a single composite rate. This simplifies the depreciation process and reduces record keeping.

Question 13

The depreciable cost of a building is the same as its acquisition cost.

Accepted Answer

The depreciable cost of a building is not necessarily the same as its acquisition cost. The depreciable cost is the portion of the acquisition cost that can be depreciated over the useful life of the building, after accounting for any salvage value that may be recovered at the end of its useful life.

Question 14

The units of production depreciation method provides a good match of expenses against revenue.

Accepted Answer

The units of production depreciation method allocates depreciation expenses based on the actual usage of the asset, providing a good match of expenses against revenue generated by the asset.

Question 15

All property, plant, and equipment assets are depreciated over time.

Accepted Answer

Not all property, plant, and equipment (PPE) assets are depreciated; land is a common example of a PPE asset that is not depreciated because it does not typically lose value over time.

Question 16

The amount of depreciation expense for a fixed asset costing $95,000, with an estimated residual value of $5,000 and a useful life of 5 years or 20,000 operating hours, is $21,375 by the units-of-production method during a period when the asset was used for 4,500 hours.

Accepted Answer

The answer of The amount of depreciation expense for a...

Question 17

It is necessary for a company to use the same depreciation method for all of its depreciable assets.

Accepted Answer

A company may choose different depreciation methods for different types of assets based on factors such as their useful life, expected residual value, and tax considerations. For example, straight-line depreciation may be used for buildings while accelerated methods like double declining balance may be used for vehicles or equipment.

Question 18

The double-declining-balance method is an accelerated depreciation method.

Accepted Answer

The double-declining-balance method is an accelerated depreciation method where more depreciation is taken in the early years of an asset's life and less in the later years. It is called "double" because the depreciation rate is double that of the straight-line depreciation method.

Question 19

The book value of a fixed asset reported on the balance sheet represents its market value on that date.

Accepted Answer

The book value of a fixed asset represents the cost of the asset less any accumulated depreciation, not its market value. Market value may be different from the book value due to factors such as changes in supply and demand, improvements or obsolescence, and the specific circumstances of the market at that time.

Question 20

As a company records depreciation expense for a period of time a corresponding cash inflow from investing activities is reported on the statement of cash flows.

Accepted Answer

Depreciation expense is a non-cash expense, meaning it does not involve actual cash outflows. Therefore, there is no corresponding cash inflow from investing activities on the statement of cash flows.

Quiz 9: Fixed Assets and Intangible Assets