Question 1

If Desmet Company had used the double-declining balance depreciation method,the depreciation expense appearing on the 2012 income statement would be:

Accepted Answer

To calculate the double-declining balance depreciation, we first calculate the straight-line rate, which is 1/5 = 0.20 or 20%. Then we double the straight-line rate to get the double-declining balance rate, which is 40%.

Using the double-declining balance method:

Year 1: (40% x $24,000) = $9,600
Year 2: (40% x ($24,000 - $9,600)) = $5,760
Year 3: (40% x ($24,000 - $9,600 - $5,760)) = $3,456
Year 4: (40% x ($24,000 - $9,600 - $5,760 - $3,456)) = $2,073.60
Year 5: (40% x ($24,000 - $9,600 - $5,760 - $3,456 - $2,073.60)) = $1,242.16

Therefore, the depreciation expense for 2012 using the double-declining balance method is $5,760. Answer choice B is the correct answer.

Question 2

An asset with a book value of $19,000 is sold for $16,000.Which of the following answers would accurately represent the effects of the sale on the financial statements? (Note: The answers show the net effect on the total amount under each category.For example,if cash increased by $100 and Accounts Receivable decreased by $70,a net $30 increase would be shown in the assets column.)

Accepted Answer

The sale of the asset results in a decrease in assets (from the sale of the asset) and an increase in cash (from the receipt of payment). The book value of the asset is less than the sale price, resulting in a loss. This loss is recognized in the income statement, which results in a decrease in equity. The decrease in the asset account and equity account are greater than the increase in the cash account, resulting in a net decrease in total assets and equity. Hence, the only choice that shows a decrease in both assets and equity is D.

Question 3

Flynn Company experienced an accounting event that affected its financial statements as indicated below:  Which of the following accounting events could have caused these effects on Flynn's statements?

Accepted Answer

All of these accounting events could have caused these effects on Flynn's statements. Depletion and depreciation expenses both decrease net income, while also reducing the value of the related assets on the balance sheet. Amortization of patent cost also reduces net income and the value of the intangible asset on the balance sheet.

Question 4

On September 10,2012,Barden Company sold a piece of equipment for $3,000.The equipment had an original cost of $17,000 and accumulated depreciation of $15,500 at the time of the sale.Which of the following correctly shows the effect of the sale on the 2012 financial statements?

Accepted Answer

The answer of On September 10,2012,Barden Company sold a piece...

Question 5

On January 1,2012,Snyder Company spent $820 on an asset (a machine)to improve its quality.The machine had been purchased on January 1,2010 for $4,200 and had an estimated salvage value of $600 and a useful life of five years.Which of the following correctly shows the effects of the 2012 expenditure on the financial statements?

Accepted Answer

The answer of On January 1,2012,Snyder Company spent $820 on...

Question 6

Rouse Company owned an asset that had cost $32,000.The company sold the asset on January 1,2012 for $8,000.Accumulated depreciation on the day of sale amounted to $26,000.Based on this information,the sale would result in:

Accepted Answer

The sale of the asset would result in an $8,000 cash inflow in the investing activities section of the cash flow statement.

Question 7

Laurens Company purchased equipment that cost $10,000 on January 1,2012.The asset had an expected useful life of five years and an estimated salvage value of $2,000.Laurens uses the straight-line method for the recognition of depreciation expense.At the beginning of the fourth year of usage,the company revised its estimated salvage value to $1,000.Based on this information,the amount of depreciation expense to be recognized at the end of 2015 is:

Accepted Answer

The answer of Laurens Company purchased equipment that cost $10,000...

Question 8

At the beginning of 2013,Reno revised the expected life to eight years.The annual amount of depreciation expense for each of the remaining years would be:

Accepted Answer

To calculate the annual depreciation expense, we need to determine the depreciable cost of the asset first. Depreciable cost = original cost - salvage value = $50,000 - $2,000 = $48,000.

The straight-line depreciation method is used, so we divide the depreciable cost by the revised expected life of the asset:

Annual depreciation expense = ($48,000 ÷ 8) = $6,000

However, we need to account for the fact that part of 2013 has already passed, so we need to subtract the depreciation expense for that period (January - May, or 5 months out of 12) from the total.

$6,000 × (5/12) = $2,500

$6,000 - $2,500 = $3,500

Therefore, the annual amount of depreciation expense for each of the remaining years would be $6,160 ($3,500 + $6,000). The answer is C.

Question 9

Which of the following statements is true with regard to depreciation expense?

Accepted Answer

A is true as it is generally accepted accounting practice to select the depreciation method that best matches expense recognition with the use of the asset. B is false because using double declining balance will result in a larger depreciation expense annually and thus a smaller book value for assets, compared to straight line. C is false because while double declining balance does produce a larger depreciation expense annually, straight line will depreciate the asset for a longer period of time and thus may have a greater total depreciation expense over the asset's life. D is false because different companies may have different strategies for managing assets and thus may select different depreciation methods.

Question 10

Assume that Desmet Company sold the office equipment on December 31,2012 for $6,000,the amount of net income or (net loss)appearing on the December 31,2012 income statement would be

Accepted Answer

The answer of Assume that Desmet Company sold the office...

Question 11

Sweetwater Company paid cash to prolong the useful life of one of its assets.Which of the following choices accurately reflects how this event would affect Sweetwater's financial statements?

Accepted Answer

The answer of Sweetwater Company paid cash to prolong the...

Question 12

Remsen,Inc.purchased equipment that cost $48,000.The equipment had a useful life of 5 years and a $5,000 salvage value.Remsen used the double-declining-balance method to depreciate its assets.Which of the following choices accurately reflects how the recognition of the first year's depreciation would affect the company's financial statements?

Accepted Answer

The answer of Remsen,Inc.purchased equipment that cost $48,000.The equipment had...

Question 13

On January 1,2012 Morgan Co.purchased a truck that cost $32,000.The truck had an expected useful life of 10 years and a $5,000 salvage value.The amount of depreciation expense recognized in 2013 assuming that Morgan uses the double declining-balance method is:

Accepted Answer

The answer of On January 1,2012 Morgan Co.purchased a truck...

Question 14

Using straight line depreciation,determine the amount of depreciation expense and the amount of accumulated depreciation that would appear on the December 31,2012 financial statements.

Accepted Answer

The straight-line depreciation method divides the cost of the asset minus its salvage value by the useful life of the asset. The accumulated depreciation is the total depreciation expense accumulated over the years. The correct choice reflects these calculations.

Question 15

If the original expected life remained the same (i.e.,5-years),but at the beginning of 2013 the salvage value were revised to $6,000,the annual depreciation expense for each of the remaining years would be:

Accepted Answer

The revised depreciation expense is calculated by subtracting the revised salvage value from the book value at the beginning of 2013 and dividing by the remaining useful life.

Question 16

Philips Corporation purchased a truck that cost $26,000.The company expected to drive the truck 100,000 miles.The truck had an estimated salvage value of $2,000.If the truck is driven 36,000 miles in the current accounting period,which of the following amounts should be recognized as depreciation expense?

Accepted Answer

First, we need to calculate the depreciation rate per mile:

Depreciation rate = (cost - salvage value) / expected miles
Depreciation rate = ($26,000 - $2,000) / 100,000 miles
Depreciation rate = $24,000 / 100,000 miles
Depreciation rate = $0.24 per mile

Next, we need to calculate the depreciation expense for the 36,000 miles driven in the current accounting period:

Depreciation expense = depreciation rate * miles driven
Depreciation expense = $0.24/mile * 36,000 miles
Depreciation expense = $8,640

Therefore, the correct answer is D) $8,640.

Question 17

Clark Company paid cash to purchase equipment on January 1,2012.Select the answer that shows how the recognition of depreciation expense in 2012 would affect assets,liabilities,equity,net income,and cash flow (+ means increase,- decrease,and NA not affected).

Accepted Answer

The answer of Clark Company paid cash to purchase equipment...

Question 18

At the end of the current accounting period,Washta Co.recorded depreciation of $25,000 on its equipment.The effect of this entry on the company's balance sheet is to:

Accepted Answer

Depreciation is a non-cash expense that decreases the value of assets on the balance sheet. Therefore, the entry would decrease assets and decrease owners' equity. This is because owners' equity is the residual interest in the assets of the company after liabilities are deducted.

Question 19

On January 1,2012,Santa Fe Company purchased a truck that cost $34,000.The truck had an expected useful life of 5 years and a $4,000 salvage value.Based on this information alone:

Accepted Answer

The answer of On January 1,2012,Santa Fe Company purchased a...

Question 20

On January 1,2012,Gray Company purchased a new company car for $36,000.The car has an expected salvage value of $6,000.The company estimates that the car will be driven 100,000 miles over its life and uses units of production to determine depreciation expense.The car was driven 20,000 miles in 2012.At the beginning of 2013 the company revised the estimated total life to 120,000 miles.If 26,000 miles were driven in 2013,the amount of depreciation expense for the year would be

Accepted Answer

First, we need to find out the total miles driven by the car up to the end of 2013:
Total miles driven = miles driven in 2012 + miles driven in 2013
Total miles driven = 20,000 + 26,000
Total miles driven = 46,000

Now we can calculate the depreciation rate per mile:
Depreciation rate per mile = (purchase cost - salvage value) / expected total miles
Depreciation rate per mile = ($36,000 - $6,000) / 100,000
Depreciation rate per mile = $0.30/mile

Using this depreciation rate, we can calculate the depreciation expense for 2013:
Depreciation expense = depreciation rate per mile x miles driven in 2013
Depreciation expense = $0.30/mile x 26,000 miles
Depreciation expense = $7,800

Therefore, the correct answer is C) $6,240.

Quiz 6: Accounting for Long-Term Operational Assets