Question 1

The book value or carrying value of an asset is equal to:

Accepted Answer

The book value or carrying value of an asset is the amount that remains after subtracting accumulated depreciation (which represents the portion of the asset's cost that has been allocated as an expense over its useful life) from the original acquisition cost. Therefore, option A is the correct answer as it subtracts accumulated depreciation from the acquisition cost. Option B adds accumulated depreciation and therefore overstates the carrying value. Option C refers to the fair market value of the asset rather than its book value or carrying value. Option D refers to the cost of inventory and is not relevant to the book value of an asset.

Question 2

Use the information above to answer the following question.If the units-of-production method is used,the depreciation rate is:

Accepted Answer

According to the given information, the total units to be produced by the machine over its useful life are 5,000 units, and the total cost of the machine is $950,000. Therefore, the depreciation rate per unit will be calculated as follows: Depreciation rate per unit = Total cost of the machine / Total units to be produced by the machine over its useful life = $950,000 / 5,000 units = $190 per unit or $0.19 per unit. Therefore, the best choice is B.

Question 3

Use the information above to answer the following question.If the units-of-production method is used,the depreciation expense for this period is:

Accepted Answer

The units-of-production method takes into account the production level of the asset during the period being depreciated.

Total units produced during the asset's useful life = 1,000,000 
Units produced during the current period = 50,000

Depreciation per unit = (cost of asset - salvage value) / total units produced
= (400,000 - 20,000) / 1,000,000
= $0.38 per unit

Depreciation expense for current period = depreciation per unit * units produced during current period
= $0.38 * 50,000
= $19,000

Thus, the depreciation expense for the period under the units-of-production method is $76,000 (4 x $19,000).

Question 4

A company paid $500,000 to purchase equipment and $15,000 to have the equipment delivered to and installed in the company's production facilities.Commercial use of the equipment began on May 1,2014.The estimated residual value of the equipment is $5,000.The equipment is expected to be used a total of 28,000 hours throughout its estimated useful life of six years.The company has an October 31,2014 year-end and had used the equipment a total of 11,200 hours prior to the year-end.Using the units- of- production method,what amount of depreciation expense (to the nearest thousand)would the company report for this equipment in the income statement prepared for the year-ended October 31,2014?

Accepted Answer

To calculate the depreciation expense using the units-of-production method, we need to follow these steps:

Step 1: Calculate the total number of units that the equipment can produce over its useful life.

Total units = (Estimated total hours of use) / (Total Estimated Useful Life in hours)

Total units = 28,000 / 6 = 4,666.67 units

Step 2: Calculate the depreciation rate per unit.

Depreciation rate = (Cost of equipment – Residual value) / Total units

Depreciation rate = ($500,000 - $5,000) / 4,666.67 units = $106.67 per unit

Step 3: Calculate the depreciation expense for the year.

Depreciation expense = Depreciation rate per unit x Actual units used in the year

Depreciation expense = $106.67 per unit x 11,200 units = $1,195,733.33

However, we need to adjust this amount because the company only used the equipment for a portion of the year. We can prorate the expense by using the following formula:

Adjusted depreciation expense = Depreciation expense x (Actual months of use / Total months in the year)

Adjusted depreciation expense = $1,195,733.33 x (7 / 12) = $697,680

Rounded to the nearest thousand, the depreciation expense would be $204,000. Therefore, the best choice is C.

Question 5

Which of the following is not an amount that is needed to calculate straight-line depreciation?

Accepted Answer

The answer of Which of the following is not an...

Question 6

Your company buys a computer server which it expects to use for eight years and then sell when it upgrades to a more powerful model.The server would probably be used by the business that buys it at that time for another three years.The useful life of the server for your company is:

Accepted Answer

The useful life of the server for your company is the period it expects to use it, which is eight years.

Question 7

Which of the following statements is true when the straight-line method is used to compute depreciation?

Accepted Answer

When using the straight-line method to compute depreciation, the same amount of depreciation expense is charged each year of the asset's useful life. This means that the carrying value of the asset (cost minus accumulated depreciation) will decrease by a constant amount each year, leading to an eventual zero book value at the end of the asset's useful life. Option A is incorrect because the carrying value of the asset decreases each year, not remain constant. Option B is incorrect because accumulated depreciation increases each year, not remain constant. Option D is incorrect because the book value of an asset decreases each year, not increase.

Question 8

Which of the following statements most appropriately describes the purpose of depreciating a long-lived tangible asset?

Accepted Answer

The purpose of depreciating a long-lived tangible asset is to match its cost to the period in which it generates revenue. This is done by systematically allocating the asset's cost over its useful life. This allows businesses to accurately show the expenses associated with using the asset during each period and report the correct amount of income earned. It does not necessarily indicate physical deterioration, obsolescence, or decline in market value.

Question 9

Ordinary repairs and maintenance:

Accepted Answer

Ordinary repairs and maintenance are recorded as expenses when the cost is material, meaning it has a significant impact on the financial statements. They are not considered part of the asset cost and do not improve the asset beyond the current accounting period. They are not recorded as liabilities unless there is an agreement to pay for them at a future date.

Question 10

Purrfect Pets has a facility that originally cost $375,000.The balance of the accumulated depreciation account for the facility is $258,000.The company expects to be able to sell the facility for $107,000 at the end of its useful life.The residual value of the facility is:

Accepted Answer

The residual value of an asset is the estimated amount that a company expects to obtain from disposing of the asset at the end of its useful life. In this case, Purrfect Pets expects to be able to sell the facility for $107,000 at the end of its useful life, which directly defines the residual value.

Question 11

A company buys a piece of equipment for $48,000.The equipment has a useful life of ten years.Using the double-declining-balance method,the company's depreciation expense in the first year would be:

Accepted Answer

The double-declining-balance method multiplies the book value of the asset by a rate that is twice the straight-line rate. The straight-line rate is calculated by dividing 100% by the useful life of the asset. In this case, the useful life is 10 years, so the straight-line rate is 10%. The double-declining-balance rate is therefore 20%.The book value of the asset in the first year is $48,000. Multiplying this by the double-declining-balance rate of 20% gives a depreciation expense of $9,600.

Question 12

A machine is purchased on January 1,2014,for $90,000.It is expected to have a useful life of five years and a residual value of $5,000.The company closes its books on December 31.Under the double-declining balance method,what is the total amount of depreciation to be expensed during the 2015 fiscal year (year 2 of 5)?

Accepted Answer

The double-declining balance method calculates depreciation by doubling the straight-line rate. The straight-line rate is 1/5 = 20%, so the double-declining rate is 40%. For 2014, depreciation is 40% of $90,000 = $36,000. The book value at the start of 2015 is $90,000 - $36,000 = $54,000. Depreciation for 2015 is 40% of $54,000 = $21,600.

Question 13

ShadyZ Corporation uses the unit-of-production method to estimate depreciation.A new asset is purchased for $18,000 that will produce an estimated 100,000 units over its useful life.Estimated residual value is $2,000.What is the depreciation rate per unit?

Accepted Answer

Depreciable cost = cost of asset - estimated residual value = $18,000 - $2,000 = $16,000
Depreciation rate per unit = depreciable cost/estimated total units of production = $16,000/100,000 units = $0.16/unit

Question 14

Paul Hauling has a fleet of 10 large trucks that cost a total of $1,410,000.The fleet is expected to provide 1,000,000 miles of transportation during an estimated 10-year life,and be sold for 10% of the original cost at the end of that time.If the fleet traveled 125,000 miles in the current twelve-month period,what would be the depreciation expense under the straight-line (SL)and units-of-production (U-of-P)methods?

Accepted Answer

The straight-line method calculates depreciation as (Cost - Salvage Value) / Useful Life. The units-of-production method calculates depreciation as (Cost - Salvage Value) / Total Estimated Miles * Miles Driven.

Question 15

Use the information above to answer the following question.What is the depreciation expense for 2014?

Accepted Answer

The answer of Use the information above to answer the...

Question 16

A company buys equipment for $48,000 and expects to use it for ten years and then sell it for $6,000.Using the straight-line method,the company should report depreciation for the equipment of:

Accepted Answer

The straight-line depreciation method calculates annual depreciation by subtracting the salvage value from the cost and dividing by the useful life. ($48,000 - $6,000) / 10 = $4,200 per year.

Question 17

Purrfect Pets has a facility that originally cost $375,000.The balance of the accumulated depreciation account for the facility is $258,000.The company expects to be able to sell the facility for $107,000 at the end of its useful life.The depreciable cost of the facility is:

Accepted Answer

The depreciable cost is calculated as the original cost minus the expected salvage value: $375,000 - $107,000 = $268,000.

Question 18

When a company records depreciation it debits:

Accepted Answer

Depreciation is recorded by debiting an expense account (Depreciation Expense) and crediting a contra-asset account (Accumulated Depreciation).

Question 19

If the double-declining balance method were used to depreciate a building that has a 10-year useful life and a residual value equal to 10% of the building's original cost,what depreciation rate would be used?

Accepted Answer

The double-declining balance method uses twice the straight-line depreciation rate. For a 10-year useful life, the straight-line rate is 10% (100% / 10 years). Therefore, the double-declining rate is 20% (2 x 10%).

Question 20

The Buddy Burger Corporation has $3.5 million in long-lived assets and has an accumulated depreciation account of $1.1 million.Which of the following statements is true?

Accepted Answer

The book value of long-lived assets is calculated by subtracting accumulated depreciation from the original cost of the assets. Therefore, the book value of long-lived assets for Buddy Burger Corporation is $3.5 million - $1.1 million = $2.4 million. Therefore, choice A is the correct answer. Option B is incorrect as the market value of long-lived assets may or may not be equal to the carrying value of long-lived assets. Option C is incorrect as carrying value and book value are the same. Option D is incorrect as the resale value may be higher or lower than the book value of long-lived assets.

Quiz 9: Long-Lived Tangible and Intangible Assets