Deck 11: Depreciation and Depletion

Question 1

Exhibit 11-1 On January 1, 2010, Hills purchased equipment for $200, 000.The equipment had an estimated useful life of ten years and an estimated residual value of $40, 000.Use the double-declining-balance method to answer the following question(s).

-
Refer to Exhibit 11-1.What is the net book value of this asset that Hills should report on the company's balance sheet at December 31, 2011?

A)$142, 600
B)$128, 000
C)$120, 000
D)$102, 400

Answer 1

$128, 000

Question 2

The factors involved in computing periodic depreciation charges for an asset do not include the

A)method of cost allocation
B)current value of the asset
C)service life
D)residual value of the asset

Answer 2

B

Question 3

The Zorro Company purchased equipment on January 1, 2010, for $100, 000.The equipment had an estimated residual value of $10, 000, an estimated useful life of five years, and estimated lifetime output of 18, 000 units.In 2011, the company produced 4, 400 units and recorded depreciation expense of $22, 000.What depreciation method did the company use?

A)straight-line method
B)sum-of-the-years'-digits method
C)double-declining-balance method
D)units-of-output method

Answer 3

D

Question 4

Which of the following is not a factor in selecting a depreciation method?

A)salvage value
B)repair and maintenance costs
C)inflation
D)the risk associated with the cash flows from the asset

Question 5

Which of the following depreciation methods should be used when the expected benefits to be received from an asset will decline each period?

A)straight-line method
B)units-of-production method
C)sum-of-the-years'-digits method
D)compound-interest method

Question 6

Which depreciation method ignores residual value when computing the depreciable base of an asset?

A)sum-of-the-years'-digits method
B)double-declining-balance method
C)composite method
D)group method

Question 7

Which depreciation method cannot be used when the residual value is zero?

A)sum-of-the-years'-digits method
B)retirement method
C)fixed-percentage-of-declining-balance method
D)150%-declining-balance method

Question 8

Which depreciation method calculates annual depreciation expense based on the book value of an asset?

A)double-declining-balance method
B)sum-of-the-years'-digits method
C)inventory systems method
D)group method

Question 9

Depreciation of an asset based on the number of hours of usage is a(n)

A)time-based method
B)accelerated method
C)replacement method
D)activity-based method

Question 10

Which one of the following statements is true?

A)The activity method of computing depreciation could result in zero depreciation expense in some periods of time.
B)If the activity method is in use, residual value should not be subtracted from cost to determine the depreciation base.
C)The activity method produces a constant unit cost of depreciation.
D)The activity method should be used when the service life of the asset is affected mostly by the passage of time.

Question 11

Many companies that use the declining-balance method of depreciation switch to the straight-line method at what point in the life of a depreciable asset?

A)never, as one method must be applied consistently throughout the life of an asset
B)in the last quarter of the life of the asset
C)when the accelerated depreciation exceeds the straight-line depreciation
D)midpoint in the life of the asset

Question 12

On January 1, 2010, Lefler, Inc.purchased a machine for $6, 000.The estimated life and residual value were five years and $150, respectively.The machine will produce approximately 80, 000 units over its life.In 2010 and 2011, the machine produced 10, 000 and 15, 000 units, respectively.In 2011, Lefler recorded $1, 440 of depreciation expense.The depreciation method in use was the

A)activity method
B)sum-of-the-years'-digits method
C)double-declining-balance method
D)straight-line method

Question 13

Exhibit 11-1 On January 1, 2010, Hills purchased equipment for $200, 000.The equipment had an estimated useful life of ten years and an estimated residual value of $40, 000.Use the double-declining-balance method to answer the following question(s).

-
Refer to Exhibit 11-1.How much depreciation should Hills record on the asset in 2011?

A)$16, 000
B)$20, 000
C)$32, 000
D)$40, 000

Question 14

Which one of the following statements is not true?

A)Depreciation is the process of allocating the purchase price of an asset minus its residual value to expense for each period benefited by the asset.
B)The cost of an asset includes all acquisition costs necessary to obtain the benefits to be derived from the asset.
C)The service life of an asset is the measure of the number of years of service expected from the asset before its disposal.
D)The residual value of an asset is the difference between the expected book value of the asset at the end of its service and the costs of disposal.

Question 15

When the expected cost to dismantle and remove an asset exceeds the expected selling price of a depreciable asset, the difference is

A)added to cost to determine the depreciable base
B)deducted from accumulated depreciation in the year of disposal
C)not included in the calculation of depreciation expense
D)added to the depreciation expense in the year of disposal

Question 16

Worth Manufacturing Company purchased a new production machine on July 1, 2010, for $140, 000.The estimated salvage value is $10, 000.The company uses units-of-production depreciation and estimates the machine will produce 100, 000 units during its useful life.In 2010, the company manufactured 5, 000 units after acquiring the machine.Depreciation expense for 2010 will be

A)$ 0
B)$ 6, 500
C)$ 7, 000
D)$13, 000

Question 17

Which one of the following is not a factor that limits the service life of an asset?

A)operational use
B)adequacy
C)deterioration as a function of time
D)obsolescence

Question 18

The service life of an asset may be measured by all of the following except

A)units of output
B)units of activity
C)units of input
D)units of time

Question 19

Exhibit 11-1 On January 1, 2010, Hills purchased equipment for $200, 000.The equipment had an estimated useful life of ten years and an estimated residual value of $40, 000.Use the double-declining-balance method to answer the following question(s).

-
Refer to Exhibit 11-1.How much depreciation should Hills record on the asset in 2010?

A)$20, 000
B)$25, 600
C)$32, 000
D)$40, 000

Question 20

The Charleston Company purchased a truck on January 1, 2010.The truck cost $36, 000 and was expected to have a residual value of $4, 000 at the end of 2017.Charleston uses the 150%-declining-balance depreciation method.What amount of depreciation should Charleston record on the truck in 2010?

A)$6, 000
B)$6, 750
C)$8, 000
D)$9, 000

Question 21

The Cardell Company purchased a machine on January 2, 2010, at a cost of $1, 200, 000.The machine had an estimated useful life of eight years and a residual value of $120, 000.Cardell computes depreciation by the sum-of-the-years'-digits method.What amount, net of accumulated depreciation, will appear on the company's December 31, 2012, balance sheet for this machine?

A)$ 570, 000
B)$ 630, 000
C)$ 805, 094
D)$1, 080, 000

Question 22

The Ancira Co.acquired a machine on May 1, 2010, at a cost of $60, 000.The machine is expected to have a ten-year life and a residual value of $5, 000.The estimated lifetime output from the machine is expected to be 55, 000 units.Under which of the following depreciation methods would the depreciation charge be the greatest in 2010 if 9, 100 units were produced during the year?

A)activity (units-of-output)method
B)straight-line method
C)sum-of-the-years'-digits method
D)double-declining-balance method

Question 23

Willard Business Services purchased three assets with the following characteristics: $\begin{array}{lrrr}&&\text { Residual }\\\text { Asset } & \text { Cost } & \text { Value } & \text { Life }\\\text { Photocopier } & \$ 12,000 & \$ 2,000 & 10 \text { year } \\\text { Computer } & 6,800 & 1,200 & 4 \text { yerr } \\\text { Typewriter } & 1,500 & 250 & 5 \text { year }\end{array}$ Assuming Willard uses straight-line depreciation, the composite depreciation rate is

A)10.1%
B)13.1%
C)15.7%
D)18.2%

Question 24

Which one of the following statements is not a disclosure requirement for depreciation?

A)the balance of major classes of depreciable assets
B)a general description of the method(s)used for depreciation
C)the accumulated depreciation for each major class of depreciable asset
D)the useful lives for each major class of depreciable asset

Question 25

A company purchased ten delivery vehicles at a cost of $20, 000 each and used the group depreciation method.Which of the following entries would be correct when recording the subsequent sale of an individual computer for $8, 500 (group accumulated depreciation is $88, 000)?

A)
$\begin{array}{l}\text { Cash }&8,500 \\\text { Accumulated Depreciation } &8,800\\\text { Computers }&17,300\end{array}$
B)
$\begin{array} { l r r } \text { Cash } & 8,500 \\\text { Accumulated Depreciation } & 11,500 \\\text { Computers } & 20,000\end{array}$
C)
$\begin{array}{llr} \text { Cash } &8,500\\ \text { Computers } &&8,500\\\end{array}$

D)
$\begin{array} { l r r } \text { Cash } & 8,500 \\\text { Accumulated Depreciation } & 8,800 \\\text { Loss on Sale } & 2,700 \\\text { Computers } &{ 20,000 }\end{array}$

Question 26

On January 1, 2010, Pinnacle purchased an asset that had an estimated residual value of $700 after an economic life of four years.Pinnacle used sum-of-the-years'-digits depreciation and recorded $1, 560 of depreciation expense in 2012.What was the cost of the asset?

A)$5, 900
B)$7, 100
C)$4, 500
D)$8, 500

Question 27

Related to accounting for the impact of inflation on fixed assets, GAAP requires

A)management's discretion
B)use of current dollars
C)dollars realized in future periods
D)GAAP is silent on the issue

Question 28

Madison Industries uses the straight-line depreciation method.One asset had been purchased for $9, 000.Annual depreciation expense was $800 after considering residual value of $1, 000.What was the approximate life of the asset?

A)8.00 years
B)10.00 years
C)11.25 years
D)12.00 years

Question 29

Five trucks costing $20, 000 each were purchased by the Burns Company at the beginning of 2010.Burns capitalized the trucks in a single asset account and depreciates them using the group method.Each truck was expected to have a residual value of $6, 000 in four years.At the end of 2013, Burns sold one truck for $8, 000.For what amount is accumulated depreciation debited in the journal entry to record the disposal of that truck?

A)$14, 000
B)$12, 000
C)$10, 500
D)$20, 000

Question 30

Which one of the following statements is true?

A)One objective of depreciating an asset is to provide funds for replacement.
B)GAAP requires the use of either straight-line or declining-balance depreciation.
C)Straight-line depreciation results in a decreasing rate of return on total assets.
D)Typically, the sum-of-the-years'-digits method will result in less depreciation expense in the year of acquisition than will the double-declining-balance method.

Question 31

Depreciation expense under the inventory system is

A)based on cost minus residual value
B)basically a FIFO approach to depreciable asset accounting
C)the result of applying a depreciation rate to the original cost
D)a measure of the change in the value of the depreciable asset

Question 32

A student is defending a certain depreciation method.She uses the argument that repairs and maintenance costs will probably increase as the asset gets older.She also argues that the asset will produce less as it gets older.What depreciation method is she probably defending?

A)straight-line method
B)sum-of-the-years'-digits method
C)sinking-fund method
D)activity method

Question 33

When low-cost depreciable assets with similar characteristics, service lives, and residual values are acquired, which depreciation method should be used?

A)composite depreciation
B)impairment depreciation
C)group depreciation
D)such assets should not be depreciated

Question 34

Which one of the following statements is true?

A)Financial statement readers cannot determine whether the depreciation method used by a company is appropriate.
B)Financial statement readers can determine the useful lives of assets depreciated during the reported period.
C)Financial statement readers cannot determine the depreciation expense for the reported period.
D)Financial statement readers can accurately estimate the effect an alternative depreciation method would have on income.

Question 35

Which one of the following statements is not true regarding depreciation?

A)It is a systematic, rational method of allocating the cost of an asset over its useful life.
B)It attempts to match the costs of acquiring an asset to the benefits to be derived from the asset.
C)It does not attempt to measure the value of the asset.
D)It provides funds for the replacement of the asset through tax savings over the asset's life.

Question 36

What effect does depreciation have on the calculation of the rate of return on total assets?

A)affects both the numerator and denominator
B)no effect
C)increases the outcome
D)decreases the outcome

Question 37

Metzger, Inc.purchased ten portable heating units for $5, 000 each, with an average expected service life of four years and a residual value of $700 each.The depreciation rate for the assets, assuming the group depreciation method is used, will be

A)20%
B)21.5%
C)25%
D)29%

Question 38

Which one of the following disclosures is required by generally accepted accounting principles?

A)depreciation expense for each major class of asset
B)balances of major classes of depreciable assets by nature or function
C)accumulated depreciation on each depreciable asset
D)an explanation of why the depreciation method used was selected by management

Question 39

Which one of the following statements is an advantage of the group and composite methods of depreciation?

A)Faulty estimates are concealed for long periods.
B)Gains are deferred beyond the period in which they actually occurred.
C)Record keeping is simplified.
D)Losses are not recognized in the period in which they occur.

Question 40

On January 1, 2010, Frommer, Inc.purchased an asset for $32, 000.It was estimated that the asset life was seven years, after which it would have a residual value of $2, 100.Assuming the use of the sum-of-the-years'-digits method, depreciation expense for 2010 would be

A)$4, 271
B)$7, 475
C)$8, 000
D)$8, 543

Question 41

On July 1, 2010, United Stereo purchased camera equipment for $5, 000.The estimated life of the equipment was ten years and the residual value was estimated to be $2, 000.Double-declining-balance depreciation was used.If calculations are based on the nearest whole month, depreciation expense for the year 2012 was

A)$720
B)$900
C)$640
D)$800

Question 42

On January 1, 2010, Montana Co.purchased five machines at a price of $10, 000 per machine.Because the estimated life was five years and no salvage value was expected, a group depreciation rate of 20% was used.On January 1, 2012, one of the machines was sold for $5, 000.The correct entry to record the sale of the machine is

A)
$\begin{array} { l c } \text { Cash } & 5,000 \\\text { Loss on Sale of Machine } & 1,000 \\\text { Accumulated Depreciation } & 4,000 \\\text { Machines } & 10,000\end{array}$
B)
$\begin{array}{l}\text { Cash }&5,000 \\\text { Machines }&&5,000\end{array}$
C)
$\begin{array}{ll}\text { Cash } & 5,000 \\\text { Loss on Sale of Machines } & 5,000 \\\text { Machines } & 10,000\end{array}$
D)
$\begin{array}{ll}\text { Cash } & 5,000 \\\text { Accumulated Depreciation } & 5,000 \\\text { Machines } & 10,000\end{array}$

Question 43

Exhibit 11-2 Bryan purchased a business computer for $4, 500 on August 3, 2010.It has an estimated residual value of $500 and an expected service life of five years.Bryan uses double-declining-balance depreciation computed to the nearest whole month.

-
Refer to Exhibit 11-2.Depreciation expense for 2010 was

A)$ 600
B)$ 667
C)$ 750
D)$1, 500

Question 44

Smith has a fiscal year-end of December 31.Smith purchased a piece of equipment for $12, 000 in February with a four-year useful life and a zero residual value.Smith used the equipment to produce finished goods in March that were sold on credit in April with cash collected in May.Smith uses straight-line depreciation.The amount of depreciation expense affecting the reported income on the first quarter income statement was

A)$250
B)$ 0
C)$500
D)$700

Question 45

When conducting an impairment test, a company must estimate

A)future cash flows from its use of the asset and eventual sale
B)net cash flows from its use of the asset and eventual sale
C)total net flows from its use of the asset and eventual sale
D)total cash from its use of the asset and eventual sale

Question 46

Battle Co.purchased a new truck for $36, 000 on June 1, 2010, with a useful life of eight years and a residual value of $4, 800.If the company used double-declining-balance depreciation computed to the nearest whole year, depreciation expense for 2011 was

A)$6, 750.00
B)$7, 687.50
C)$5, 250.00
D)$5, 850.00

Question 47

Karen Co.computes depreciation to the nearest whole month and uses the straight-line method.On April 2, 2010, the company purchased an asset for $14, 000 with a four-year life and a $2, 000 residual value.On November 6, Karen also sold an asset with a cost of $34, 500 that had been purchased in 2008.The sold asset had been estimated to have a five-year life and no residual value when it was purchased.The depreciation expense on these two assets for 2010 totals

A)$8, 000
B)$7, 200
C)$7, 800
D)$7, 600

Question 48

On June 15, 2010, Jumper Corporation purchased a truck for $50, 000 with an estimated useful life of six years and a residual value of $8, 000.The company uses units-of-production depreciation and estimates the truck will last 300, 000 miles.The truck was driven 20, 000 miles in 2010 and 60, 000 miles in 2011.The accumulated depreciation balance on December 31, 2011, after the adjusting entries have been posted should be

A)$ 8, 400
B)$10, 000
C)$11, 200
D)$13, 333

Question 49

The FASB established principles for evaluating asset impairment because it hoped financial reporting would

A)be enhanced through the usefulness of a company's financial statements
B)present information that is expected to be more relevant
C)improve comparability across companies
D)all of these

Question 50

Once an asset is impaired,

A)annual depreciation expense is the same
B)accumulated depreciation needs to be adjusted
C)subsequent years' depreciation expense is based upon changes in the asset's fair value
D)the reduced book value is used to compute future years' depreciation

Question 51

An impairment loss must be recognized when an asset's

A)book value is lower than its fair value
B)book value is higher than its fair value
C)present value is lower than its fair value
D)present value is higher than its fair value

Question 52

Exhibit 11-2 Bryan purchased a business computer for $4, 500 on August 3, 2010.It has an estimated residual value of $500 and an expected service life of five years.Bryan uses double-declining-balance depreciation computed to the nearest whole month.

-
Refer to Exhibit 11-2.Depreciation expense for 2011 should be

A)$ 600
B)$ 667
C)$ 750
D)$1, 500

Question 53

Exhibit 11-2 Bryan purchased a business computer for $4, 500 on August 3, 2010.It has an estimated residual value of $500 and an expected service life of five years.Bryan uses double-declining-balance depreciation computed to the nearest whole month.

-
Refer to Exhibit 11-2.The accumulated depreciation balance at December 31, 2011, should be

A)$1, 750
B)$2, 000
C)$2, 250
D)$2, 340

Question 54

On July 9, 2010, Marcus Company purchased an asset for $18, 000.Marcus estimated a four-year life and no salvage value.Marcus uses sum-of-the-years'-digits depreciation to the nearest whole month.Depreciation expense for 2013 will be

A)$1, 800
B)$2, 700
C)$3, 600
D)$4, 500

Question 55

Brady's purchased a piece of equipment for $30, 000 with a useful life of nine years and a residual value of $6, 000 on January 2, 2010.If Brady's used the sum-of-the-years'-digits method with the half-year convention, depreciation expense for 2010 was

A)$2, 400.00
B)$2, 666.67
C)$3, 000.00
D)$3, 333.33

Question 56

Property, plant, and equipment must be reviewed for impairment when which one of the following events occurs?

A)A significant change in the asset's estimated useful life occurs.
B)The costs of constructing the asset are determined to be less than the budgeted amount.
C)A current period operating loss occurs.
D)Investing activities produce a negative cash flow.

Question 57

On January 1, 2010, Digger purchased some equipment for $19, 600.The anticipated life of the equipment was five years and residual value was estimated to be $3, 100.The machine was expected to produce 600, 000 units.In January of 2010, 25, 000 units were produced and production was doubled in February.The company uses the activity depreciation method.What is the amount of depreciation expense for the month of February?

A)$ 637.50
B)$1, 210.00
C)$2, 354.00
D)$1, 375.00

Question 58

Which one of the following statements about group depreciation is true?

A)When assets are sold, losses will be recognized, but not gains.
B)This method is used for groups of dissimilar assets.
C)Different assets in the group will have different depreciation rates.
D)Only one accumulated depreciation account is necessary for the whole group.

Question 59

Weaver Co.purchased $40, 000 of equipment with a salvage value of $5, 000 and a useful life of nine years on August 15, 2010.If the company used sum-of-the-years'-digits depreciation computed to the nearest whole year, depreciation expense for 2011 was

A)$6, 222
B)$7, 000
C)$7, 111
D)$8, 000

Question 60

On January 1, 2010, Mulligan Co.began using the composite depreciation method.There were three machines to consider, as follows: $\begin{array}{lrrl}&&\text { Residual }\\\text { Assset } &\text { Cost }&\text { Value} &\text { Life }\\\text { A } & \$ 20,000 & \$ 2,000 & 6 \text { years } \\\text { B } & 15,000 & 3,000 & 3 \text { year } \\\text { C } & 5,000 & 1,000 & 4 \text { year }\end{array}$ At the end of the second year, Machine B was sold for $8, 200.In the entry to record the sale, there should be a

A)$1, 200 debit to Gain on Sale of Machine
B)$6, 800 debit to Accumulated Depreciation
C)$6, 800 debit to Loss on Sale of Machine
D)$8, 000 debit to Accumulated Depreciation

Question 61

Property, plant, and equipment may be written up to fair value under $\begin{array}{lll}& \text {IFRS}& \text {GAAF}\\\text { I. } & \text { Yes } & \text { Yes } \\\text { II. } & \text { Yes } & \text { No } \\\text { III. } & \text { No } & \text { Yes } \\\text { IV. } & \text { No } & \text { No }\end{array}$

A)I
B)II
C)III
D)IV

Question 62

On January 1, 2010, Danville Corporation acquired a machine at a cost of $60, 000.The machine's service life was estimated to be ten years and its residual value to be $6, 000.The straight-line method was used for depreciation.On January 1, 2015, the machine's remaining service life was estimated at eight years and its residual value at $3, 000.For 2015, in regard to this machine, Danville should record depreciation of

A)$3, 375
B)$3, 750
C)$4, 150
D)$6, 750

Question 63

Depletion of a natural resource is typically recorded as a

A)debit to an inventory account
B)debit to Depletion Expense
C)debit to Cost of Goods Sold
D)debit to Accumulated Depletion

Question 64

PZ Co.paid $9, 000 for some land that was expected to have 50, 000 units of a natural resource on it.Development costs amounted to $520.It was expected that the land would require $780 of reclamation costs after production.In the first year of mining, 5, 000 units of the natural resource were mined.At the beginning of the second year, it was estimated that only 40, 000 units of the natural resource remained and estimated reclamation costs should be increased to $960.In the second year, 8, 000 units were mined.What was the amount of depletion for the second year?

A)$1, 714
B)$1, 854
C)$1, 890
D)$2, 046

Question 65

Which one of the following statements is not true?

A)Depletion may be credited either to Accumulated Amortization or directly to the asset account.
B)If statutory depletion is used for tax purposes, it must also be used for financial reporting purposes.
C)Depletion costs can be added directly to inventory.
D)The total depletion charges for income tax purposes over the life of an asset may exceed the cost of the asset.

Question 66

Which one of the following statements is not true?

A)Straight-line depreciation may be used instead of MACRS for income tax reporting.
B)If MACRS is used for tax purposes, it must be used for book purposes.
C)Salvage value is not considered when the MACRS system is in use.
D)Economic lives may be different from MACRS lives.

Question 67

On January 1, 2010, Wheeler, Inc.purchased some equipment for $3, 900.The equipment had an estimated life of five years and an expected residual value of $200.On January, 1, 2012, the estimated total economic life from the original purchase date was changed to six years and the estimated residual value was increased to $300.What is the amount of depreciation expense for the year 2012?

A)$480
B)$530
C)$580
D)$424

Question 68

IFRS require the initial cost of operational assets to be

A)depreciated using the straight-line method
B)depreciated to a zero residual value
C)depreciated over one composite useful life
D)allocated to significant components and depreciated separately

Question 69

Which one of the following statements is true?

A)Using straight-line depreciation for all newly acquired assets when double-declining-balance depreciation was used in the past does not require a cumulative-effect adjustment.
B)An obvious error in recording depreciation expense in a prior year should be corrected by adjusting the current year's net income.
C)A change from straight-line to sum-of-the-years'-digits depreciation should be handled prospectively.
D)Changes in depreciation estimates are prior-period adjustments.

Question 70

IFRS require a review of the parameters used in measuring depreciation

A)at least every year
B)at least every quarter
C)when events and circumstances warrant a review
D)only when an asset is sold

Question 71

Tangible assets that are attached to natural resources are depreciated over

A)the life of the natural resource
B)the shorter of the tangible asset's life or the natural resource's life
C)the life of the tangible asset
D)the longer of the tangible asset's life or the natural resource's life

Question 72

Which of the following methods provides a tax deduction that exceeds the cost of an asset less its expected residual value?

A)MACRS depreciation
B)group depreciation
C)percentage depletion
D)cost depletion

Question 73

The MACRS differs from straight-line depreciation computed for financial reporting.In this respect, which of the following is not true?

A)The MACRS uses longer asset lives.
B)The MACRS ignores residual value.
C)The MACRS decreases the income taxes payable in the early years of an asset's life.
D)The MACRS accelerates cost recovery.

Question 74

Which one of the following statements does not require any adjustment to a company's accounts?

A)changing depreciation methods on currently owned assets
B)using a new estimated useful life in calculating depreciation
C)discovering an error in depreciation taken in a previous period
D)adopting a new depreciation method on newly acquired assets

Question 75

Which of the following is true regarding IFRS versus U.S.GAAP depreciation requirements?

A)IFRS require systematic and rational methods; GAAP requires systematic methods.
B)IFRS require systematic and rational methods; GAAP requires rational methods.
C)IFRS require systematic methods; GAAP requires systematic and rational methods.
D)IFRS require rational methods; GAAP requires systematic and rational methods.

Question 76

The Pecan Street Ice Cream Company discovers that depreciation expense was overstated last year.How should this discovery be reported in the current year?

A)as a reduction in the current year's depreciation expense
B)as an increase to the retained earnings beginning balance
C)as a miscellaneous item in the Other Revenue/Expense section of the income statement
D)as a footnote only to the current year's financial statements

Question 77

In 2010, Westmoreland Company paid $3, 000, 000 for a mining tract with reserves of 100, 000 tons of ore, which the company planned to mine over a 20-year period.The company spent $500, 000 developing the mine.Westmoreland plans to spend $200, 000 for reclamation when mining has been completed, after which the land will have an estimated value of $600, 000.In 2010, Westmoreland mined and sold 8, 000 tons of ore.What depletion should Westmoreland record for the year?

A)$155, 000
B)$248, 000
C)$280, 000
D)$296, 000

Question 78

Which one of the following statements on IFRS is not true?

A)Total depreciation for the period must be disclosed for each major class of asset.
B)The useful lives for each major class of asset must be disclosed.
C)The depreciation rates for each major class of asset must be disclosed.
D)An explanation for the change in accumulated depreciation must be disclosed for each major class of asset.

Question 79

Redeau Company has been depreciating certain assets using the straight-line method.At the beginning of the current year, the company changed to the sum-of-the-years'-digits method to depreciate these assets.Which of the following statements regarding this change is true?

A)The change should be accounted for prospectively.
B)The change should be accounted for with an adjustment of the accumulated depreciation and the retained earnings balances.
C)The change should be accounted for by including the cumulative effect of the change in the current year's income statement.
D)The accounting impact of the change is limited to the difference in current-year depreciation on the affected assets.

Question 80

The income tax savings from annual depreciation expense is calculated as

A)Depreciation ´ (1 - Tax Rate)
B)Depreciation / Tax Rate
C)Depreciation ´ Tax Rate
D)Depreciation / (1 - Tax Rate)