Question 1

Compute to the nearest full month depreciation for the fractional period from January 1, 2009 to May 31 of 2009. $______________

Accepted Answer

The answer of Compute to the nearest full month depreciation...

Question 2

Assume Lloyd uses 200%-declining-balance depreciation with the half-year convention. Depreciation expense to be recognized in 2010 (the second year of ownership) is:

Accepted Answer

The answer of Assume Lloyd uses 200%-declining-balance depreciation with the...

Question 3

On April 1, 2010, Sanders Construction paid $10,000 for equipment with an estimated useful life of 10 years and a residual value of $2,000. The company uses the double-declining-balance method of depreciation and applies the half-year convention to fractional periods. In 2011, the amount of depreciation expense to be recognized on this equipment is:

Accepted Answer

The answer of On April 1, 2010, Sanders Construction paid...

Question 4

Assume Lloyd uses the units-of-output method and that the machine was in operation for 1,000 hours in 2009 and 1,800 hours in 2010. The book value of the machine at December 31, 2010 is:

Accepted Answer

Under the units-of-output method, the depreciation cost per unit is calculated by taking the total cost of the machine and dividing it by the number of units it is expected to produce over its useful life. In this case, the machine was purchased for $95,000 and has an estimated production capacity of 500,000 units. Thus, the depreciation cost per unit is $0.19 ($95,000/500,000).

To calculate the depreciation expense for each year, Lloyd would multiply the number of units produced in the year by the depreciation cost per unit. In 2009, the machine produced 150,000 units (given in the question), so the depreciation expense for the year was $28,500 ($0.19 x 150,000). In 2010, the machine produced 300,000 units (1,800 hours x 1,000 units per hour), so the depreciation expense for that year was $57,000 ($0.19 x 300,000).

To find the book value of the machine at the end of 2010, we would subtract the accumulated depreciation (i.e. the total depreciation expense for the 2 years) from the original cost of the machine. The accumulated depreciation would be $85,500 ($28,500 + $57,000), so the book value at December 31, 2010 would be $9,500 ($95,000 - $85,500). Therefore, the correct choice is B ($58,100).

Question 5

Compute the book value of the stallion at May 31, 2009, the date of sale.
$______________

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The answer of Compute the book value of the stallion...

Question 6

Evergreen Mfg. is a rapidly growing company that acquires more equipment every year. Evergreen uses straight-line depreciation in its financial statements and MACRS in its tax returns. Identify all correct statements:

Accepted Answer

Using an accelerated method in income tax returns results in higher tax deductions, which, in turn, increases net cash flow. The other statements are incorrect. A decreasing net income would result from using an accelerated method, not increasing it, and the straight-line depreciation method reduces annual net cash flow over time as the asset's value decreases. Since Evergreen uses both straight-line depreciation and MACRS, the depreciation recorded on the financial statements and tax returns will eventually equalize. Therefore, statement D is incorrect.

Question 7

Assume Lloyd uses 150%-declining-balance depreciation with the half-year convention. Depreciation expense to be recognized in 2009 (the year of purchase) is:

Accepted Answer

The answer of Assume Lloyd uses 150%-declining-balance depreciation with the...

Question 8

Compute the gain or loss on the sale of the stallion. $______________ (gain/loss)

Accepted Answer

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Question 9

Ladd Company sold a plant asset that originally had cost $50,000 for $22,000 cash. If Ladd correctly reports a $5,000 gain on this sale, the accumulated depreciation on the asset at the date of sale must have been:

Accepted Answer

The gain on sale is calculated as the selling price minus the book value of the asset. The book value is the original cost minus accumulated depreciation. Here, $22,000 (selling price) - ($50,000 (original cost) - accumulated depreciation) = $5,000 (gain). Solving for accumulated depreciation gives $33,000.

Question 10

On April 8, 2010, Dreamland Park purchased a ferris wheel for $300,000. The estimated life of the ferris wheel was 10 years, with an estimated residual value of $60,000. The service life in terms of output is estimated at 30,000 hours of operation.
Compute the depreciation on this ferris wheel in 2010 and 2011 using the following methods.

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Accepted Answer

The answer of  On April 8, 2010, Dreamland Park...

Question 11

Which of the following statements is (are) correct?

Accepted Answer

A company may use different depreciation methods for financial reporting and tax purposes to optimize financial results and tax liabilities.

Question 12

In the space provided below, prepare the journal entry to record the sale of the stallion on May 31, 2009. (Use Breeding Stock as the title of the asset account. Assume that depreciation to date of sale already has been recorded.)

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The answer of In the space provided below, prepare the...

Question 13

In which of the following situations would Martinez Industries include goodwill in its balance sheet?

Accepted Answer

Goodwill is recorded when a company acquires another company for more than the fair market value of its net identifiable assets.

Question 14

In which of the following situations should the named company not record any depreciation expense on the asset described?

Accepted Answer

Computer Sales Company has in inventory a new type of computer designed "never to become obsolete."

Quiz 9: Plant and Intangible Assets