Question 1

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 2

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

Accepted Answer

This statement is true. The straight-line method is a common method of depreciation where the cost of the asset is allocated evenly over the useful life of the asset. This results in a constant depreciation expense each year.

Question 3

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 a half year's worth of depreciation in the first and last year of an asset's depreciation schedule, regardless of when during the year the asset was purchased or disposed of.

Question 4

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 5

The Income Tax Act requires that companies use a declining-balance method for calculating the maximum capital cost allowance that may be claimed in any period

Accepted Answer

This statement is true. The Income Tax Act of Canada does require that companies use a declining-balance method for calculating the maximum capital cost allowance that may be claimed in any period. This method allows for a higher deduction in the early years of an asset's life, gradually decreasing over time.

Question 6

Depreciation measures the decline in market value of an asset.

Accepted Answer

Depreciation measures the allocation of the cost of a tangible asset over its useful life, not the decline in market value.

Question 7

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 8

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

Accepted Answer

Accumulated depreciation is a contra-asset account that represents the cumulative depreciation expense related to an asset. It does not represent funds set aside to buy new assets.

Question 9

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

This statement is false. While companies may choose to use straight-line depreciation for simplicity or consistency purposes, they are not required to do so for tax purposes. The tax code allows for various depreciation methods and companies may choose the method that best suits their needs. Choosing a method that results in a lower depreciation expense will actually result in a lower payment of tax, not a higher one.

Question 10

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 and tax accounting may use similar recordkeeping methods, there are significant differences in the rules and regulations governing each system. For example, tax accounting often requires additional calculations and adjustments to account for tax law changes and deductions, which can result in different financial outcomes than those reported through standard financial accounting practices.

Question 11

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

Step 2 of the double-declining balance method involves doubling the straight-line depreciation rate, not the asset's cost. The correct formula is to multiply the straight-line rate by 2 and apply it to the asset's net book value (cost minus accumulated depreciation) instead of the cost.

Question 12

The full disclosure principle allows us to record an asset costing $50 as a revenue expenditure

Accepted Answer

The full disclosure principle requires a company to disclose all material information in the financial statements. Recording an asset costing $50 as a revenue expenditure would not be in accordance with this principle as it would not accurately represent the financial position of the company. An asset costing $50 should be recorded as a capital expenditure and depreciated over its useful life to accurately reflect the expense and the asset's value in the financial statements.

Question 13

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 of depreciation considers the usage or production of the asset and charges a varying amount of expense for each period of its useful life.

Question 14

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

Accepted Answer

Both the cost and accumulated depreciation of an asset should be reported on the balance sheet in order to accurately reflect the current value of the asset. The cost represents the original amount paid for the asset, while the accumulated depreciation represents the amount that has been charged as an expense over time due to the asset's use and expected decrease in value. The difference between the cost and accumulated depreciation is the asset's net book value, which is the value that should be reported on the balance sheet.

Question 15

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

Accepted Answer

Depreciation is based on estimates and predictions and therefore is not an exact calculation. The residual value and useful life of an asset may vary from the estimated values used for depreciation calculations, leading to differences between the estimated depreciation and actual depreciation.

Question 16

Depreciation should always be recorded as soon as an asset is purchased.

Accepted Answer

Depreciation should only start to be recorded once the asset is put into use or in other words, when it starts to generate revenue for the business. Prior to this, the asset should be categorized as a "prepaid expense" and not depreciated.

Question 17

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

Assets can be purchased at any time during the accounting period and depreciation can be taken for the portion of the year that the asset was used.

Question 18

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

The depreciation expense for the first year using the nearest whole month method would be $10,625 (($65,000-$5,000)/48)*6).

Question 19

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

Accepted Answer

This statement is true. The total depreciation expense is the cost of the asset minus its salvage value, divided by the useful life. The amount of depreciation expense each year may vary depending on the depreciation method used, but the total amount of depreciation over the useful life will always be the same.

Question 20

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, such as the double-declining balance method, results in larger depreciation expenses in the early years of an asset's life and smaller charges in the later years.

Quiz 9: Property, Plant and Equipment Intangibles