Question 1

Depreciation measures the decline in market value of an asset.

Accepted Answer

The answer of Depreciation measures the decline in market value...

Question 2

The double-declining balance method is applied by (1)calculating the asset's straight-line depreciation rate,(2)doubling it,(3)subtracting residual value from cost,and (4)multiplying the rate times the cost.

Accepted Answer

The steps outlined are correct, but the order is incorrect. The correct order for using the double-declining balance method is: (1) subtract the salvage value from the cost of the asset to get the depreciable base, (2) double the straight-line depreciation rate, (3) apply the double rate to the depreciable base to get the annual depreciation expense.

Question 3

Because land has unlimited life,it is not subject to depreciation.Therefore,items that increase the usefulness of the land such as parking lots are also not depreciated.

Accepted Answer

While it is true that land has unlimited life and is not subject to depreciation, items that increase the usefulness of the land such as parking lots are not considered part of the land itself and are subject to depreciation over their useful lives.

Question 4

Machinery having a four-year useful life and a residual value of $5,000 was acquired for $65,000 cash on June 28.Using the nearest whole month method,the company would recognize $11,250 for depreciation expense at the end of the first year,December 31.

Accepted Answer

Using the nearest whole month method, the depreciation expense for the first year would be calculated as follows:

($65,000 - $5,000) / (4 years x 12 months) = $1,250 per month

To determine the depreciation expense for the first year (June 28 to December 31), we first need the number of months in the first year:

June 28 to July 31 = 1 month
August 1 to August 31 = 1 month
September 1 to September 30 = 1 month
October 1 to October 31 = 1 month
November 1 to November 30 = 1 month
December 1 to December 31 = 1 month

Total months in first year = 6

Depreciation expense for first year = $1,250 x 6 = $7,500

Therefore, the statement in the question is false.

Question 5

The units of production method of depreciation charges a varying amount of expense for each period of an asset's useful life depending on its usage.

Accepted Answer

The units of production method takes into account the actual usage of the asset and charges a varying amount of expense accordingly. Therefore, the amount of depreciation expense each period will vary depending on the usage of the asset.

Question 6

A company is required to purchase all assets at the beginning of an accounting period so that a full year's worth of depreciation can be taken.

Accepted Answer

Depreciation is taken over the useful life of an asset, not necessarily over a full year. Additionally, assets may be purchased throughout the year and depreciation can be taken accordingly.

Question 7

A depreciable asset that is purchased on March 18 would be depreciated for nine months of the first year,if the fiscal year ends on December 31 using nearest whole month method.

Accepted Answer

The answer of A depreciable asset that is purchased on...

Question 8

SportsWorld purchased store equipment for $65,000.The equipment has an estimated residual value of $6,000,with an estimated useful life of 10 years.The annual depreciation using the straight-line method will be $3,900 per year.

Accepted Answer

The annual depreciation using the straight-line method is calculated as (Cost - Residual Value) / Useful Life. Therefore, ($65,000 - $6,000) / 10 = $5,900 per year.

Question 9

The relevance principle requires that property,plant and equipment be reported at book value rather than at market value.

Accepted Answer

The answer of The relevance principle requires that property,plant and...

Question 10

The most frequently used method of depreciation is the straight-line method.

Accepted Answer

The straight-line method is the simplest and most commonly used method of depreciation accounting. It assumes an equal amount of depreciation expense each year over the useful life of the asset.

Question 11

The half year rule is the partial-year depreciation method that calculates depreciation by determining if the asset was used for more than half of the month.

Accepted Answer

The half year rule actually allows for half a year's worth of depreciation to be claimed in both the first and last years of an asset's depreciation schedule, regardless of when the asset was actually purchased during the year.

Question 12

Accumulated depreciation represents funds set aside to buy new assets when the assets currently owned are replaced.

Accepted Answer

Accumulated depreciation represents the total depreciation amount incurred on an asset over its useful life. It does not represent funds set aside to buy new assets.

Question 13

An accelerated depreciation method yields smaller depreciation expense in the early years of an asset's life and larger charges in later years.

Accepted Answer

An accelerated depreciation method results in larger depreciation expenses in the early years of an asset's life and smaller charges in the later years.

Question 14

Financial accounting and tax accounting require the same recordkeeping; therefore,there should be no difference in results between the two accounting systems.

Accepted Answer

While financial accounting and tax accounting both require recordkeeping, they have different guidelines and regulations that can result in different outcomes. For example, tax accounting allows for certain deductions and credits that may not apply in financial accounting.

Question 15

Regardless of the method of depreciation,total depreciation expense will be the same over an asset's useful life.

Accepted Answer

Depreciation expense is determined based on the cost of the asset, its estimated useful life and its estimated salvage value. Regardless of the method of depreciation used (straight-line, double-declining balance, etc.), the total amount of depreciation expense recognized over an asset's useful life will be the same. The only difference between the methods is the timing of when the expense is recognized.

Question 16

Because depreciation is based on predictions of residual value and useful life,depreciation is an estimate.

Accepted Answer

Depreciation is an estimate because it is based on predictions of the future residual value and useful life of an asset. These predictions may turn out to be incorrect, leading to adjustments in the estimated depreciation over time.

Question 17

The cost of an asset plus its accumulated depreciation equals the asset's book value.

Accepted Answer

The answer of The cost of an asset plus its...

Question 18

On the balance sheet,it is not necessary to report both the cost and the accumulated depreciation of an asset.

Accepted Answer

It is necessary to report both the cost (or original purchase price) and the accumulated depreciation of an asset on the balance sheet in order to accurately reflect the book value of the asset. The accumulated depreciation is subtracted from the cost to show the net value of the asset.

Question 19

The Income Tax Act generally requires that companies use a double-declining-balance method of cost allocation called Capital Cost Allowance to determine the maximum amount of deduction for a taxation year.

Accepted Answer

This statement is true. The Income Tax Act in Canada does require companies to use the double-declining-balance method of cost allocation called Capital Cost Allowance to determine the maximum amount of deduction for a taxation year.

Question 20

Companies are required to use the straight line depreciation method for tax purposes because this method yields the lowest depreciation expense and results in the highest payment of tax.

Accepted Answer

Companies are not required to use the straight line depreciation method for tax purposes. They can choose from several depreciation methods, including accelerated depreciation methods, which can result in lower taxable income and therefore lower tax payments in the short term. However, these methods also result in larger depreciation expenses and lower profits in the long term.

Quiz 10: Property,plant and Equipment,and Intangibles