Question 1

Which depreciation method is most commonly used among publicly owned corporations?

Accepted Answer

Straight-line depreciation is the most commonly used method among publicly owned corporations because it is simple and easy to understand. It also provides a consistent and predictable expense that can be easily budgeted for. Other methods may be used for specific assets, but straight-line is the standard.

Question 2

The adjusting entries to record depreciation or amortization expense or to write down assets that have become impaired:

Accepted Answer

The adjusting entries to record depreciation or amortization expense or to write down assets that have become impaired reduce net income by recognizing the expense or loss, but have no direct effect on cash balances as it is a non-cash expense. Therefore, the best choice is B.

Question 3

Machinery acquired new on January 1 at a cost of $80,000 was estimated to have a useful life of 10 years and a residual salvage value of $20,000.Straight-line depreciation was used.On January 1,following six full years of use of the machinery,management decided that the estimate of useful life had been too long and that the machinery would have to be retired after three years,that is,at the end of the ninth year of service.Under this revised estimate,the depreciation expense for the seventh year of use would be:

Accepted Answer

The answer of Machinery acquired new on January 1 at...

Question 4

The book value of an asset in the plant and equipment category is:

Accepted Answer

The book value of an asset is the undepreciated cost, meaning the original cost minus any accumulated depreciation.

Question 5

When a company uses straight-line depreciation and the half-year convention,assets with a five-year life:

Accepted Answer

The answer of When a company uses straight-line depreciation and...

Question 6

If the 150% declining balance method is being used and an asset has a useful life of 20 years.What is the depreciation rate?

Accepted Answer

The answer of If the 150% declining balance method is...

Question 7

When straight-line depreciation is in use,the depreciation rate of an asset is equal to:

Accepted Answer

The answer of When straight-line depreciation is in use,the depreciation...

Question 8

Machinery is purchased on May 15,2015 for $50,000 with a $5,000 salvage value and a five year life.The half year convention is followed.What method of depreciation will give the highest amount of depreciation expense in year 2?

Accepted Answer

The double declining balance method accelerates depreciation, resulting in higher expenses in the earlier years compared to other methods.

Question 9

On April 8,2015,Jupitor Corp.acquired equipment at a cost of $480,000.The equipment is to be depreciated by the straight-line method over six years with no provision for salvage value.Depreciation for fractional years is computed by rounding the ownership period to the nearest month.Depreciation expense recognized in 2015 will be:

Accepted Answer

The answer of On April 8,2015,Jupitor Corp.acquired equipment at a...

Question 10

Which of the following situations is impossible?

Accepted Answer

Book value, which is the original cost minus accumulated depreciation, cannot be less than the residual (or salvage) value, as the residual value is the estimated amount for which an asset can be sold at the end of its useful life and depreciation does not reduce the book value below this point.

Question 11

If an asset is determined to be impaired,it should be:

Accepted Answer

If an asset is determined to be impaired, it should be written down to its fair market value. This is because impairment means that the asset is no longer worth its original cost and needs to be revalued based on its current market value. Writing the asset down to its fair market value reflects a more accurate value for the asset on the company's financial statements.

Question 12

Revenue expenditures are recorded as:

Accepted Answer

Revenue expenditures are expenses incurred to maintain or enhance the earning power of an asset. These expenses are recorded as expenses in the income statement and are deducted from revenue when calculating net income.

Question 13

With respect to depreciation policies,the principle of consistency means:

Accepted Answer

The principle of consistency states that a company should use the same accounting methods and procedures from year to year to ensure comparability of financial statements. In terms of depreciation policies, this means that a company should use the same depreciation method from year to year for a given plant asset, unless there is a change in circumstances that warrants a change in the method. This helps ensure that the company's financial statements accurately reflect the asset's value over time and are comparable from year to year.

Question 14

Responsibility for selection of the depreciation methods used in financial reporting rests with:

Accepted Answer

The responsibility for selecting the depreciation methods used in financial reporting rests with the company management. They are responsible for making the accounting policies and judgments that affect the financial statements of the company. The FASB provides guidance and standards for financial reporting, but ultimately it is up to the company management to decide on the specific methods used for depreciation. The IRS is responsible for enforcing tax laws, but their guidelines may not necessarily align with financial reporting requirements. The CPA firm that audits the company's financial statements reviews management's decisions and provides an opinion on the fairness of the financial statements but does not select the depreciation methods.

Question 15

On March 2,2014,Glen Industries purchased a fleet of automobiles at a cost of $550,000.The cars are to be depreciated by the straight-line method over five years with no salvage value.Glen uses the half-year convention to compute depreciation for fractional periods.The book value of the fleet of automobiles at December 31,2015,will be:

Accepted Answer

Using the straight-line depreciation method, the annual depreciation for the fleet of automobiles would be $550,000 ÷ 5 = $110,000. 
Using the half-year convention, the depreciation for the first year would be ($110,000 ÷ 2) = $55,000.
For the second year, the remaining book value would be ($550,000 - $55,000) = $495,000. 
Therefore, the depreciation for the second year would also be ($110,000 ÷ 2) = $55,000. 
The book value at December 31, 2015, would be ($495,000 - $55,000) = $440,000.
Thus, the correct answer is D) $385,000, which is the remaining book value at December 31, 2015, after deducting the two years of accumulated depreciation.

Question 16

The book value of equipment:

Accepted Answer

The book value of equipment is the cost of the equipment minus accumulated depreciation. The accumulated depreciation increases with the passage of time, resulting in a decrease in the book value of equipment. Therefore, option B is correct.

Question 17

In the fixed-percentage-of-declining-balance depreciation method,the book value of the asset is multiplied by:

Accepted Answer

The fixed-percentage-of-declining-balance depreciation method involves multiplying the book value of the asset by a constant depreciation rate each year, not an increasing, decreasing, or variably determined rate.

Question 18

Capital expenditures are recorded as:

Accepted Answer

Capital expenditures refer to long-term investments in assets that can benefit the company for many years. Therefore, they are recorded as assets on the balance sheet and are depreciated over time.

Question 19

The term accumulated depreciation,as used in accounting,is best defined as:

Accepted Answer

Accumulated depreciation represents the total amount of depreciation expense recognized since the acquisition of a plant asset. It is a contra-asset account that is used to reduce the carrying value of the asset on the balance sheet.

Question 20

When comparing the units-of-output method of depreciation with straight-line depreciation:

Accepted Answer

The depreciation expense in the first year may be greater than, equal to, or less under the units-of-output method compared to straight-line depreciation depending on the level of usage of the asset during the first year. The units-of-output method considers the usage of the asset to estimate depreciation while straight-line depreciation does not. Therefore, if the asset is heavily used in the first year, the units-of-output method may result in a higher depreciation expense in the first year compared to straight-line depreciation. On the other hand, if the asset is not heavily used in the first year, the units-of-output method may result in a lower depreciation expense in the first year compared to straight-line depreciation.

Quiz 9: Plant and Intangible Assets