Question 1

Rockport Company purchased equipment for $30,000 on January 1, 2015, and will use the diminishing-balance method of depreciation. It is estimated that the equipment will have a 3-year life and a $3,000 residual value at the end of its useful life. The amount of depreciation expense recognized in the year 2017 will be
A) $6,000.
B) $4,444.
C) $4,800.
D) $2,400.

Accepted Answer

The answer of Rockport Company purchased equipment for $30,000 on...

Question 2

Under International Financial Reporting Standards, the models which companies can choose to account for their long-lived assets are
A) cost model and units-of-production model.
B) units-of-production model and diminishing-balance model.
C) revaluation model and straight-line model.
D) cost model and revaluation model.

Accepted Answer

Under International Financial Reporting Standards, companies can choose to use either the cost model or the revaluation model to account for their long-lived assets. The cost model involves initially recording the asset at its cost, and then depreciating it over its useful life. The revaluation model involves initially recording the asset at its cost, and then revaluing it periodically to reflect changes in its fair value. Therefore, the best choice is D.

Question 3

A company purchased office equipment for $10,000 and estimated a residual value of $2,000 at the end of its 4-year useful life. The constant percentage to be applied against carrying amount each year if the double diminishing-balance method is used is
A) 20%.
B) 25%.
C) 50%.
D) 4%.

Accepted Answer

The answer of A company purchased office equipment for $10,000...

Question 4

Dorchester Company purchased a new van for floral deliveries on July 1, 2017. The van cost $20,000 with an estimated life of 5 years and $5,000 residual value at the end of its useful life. The double diminishing-balance method of depreciation will be used. What is the depreciation expense for 2017?
A) $4,000
B) $3,000
C) $6,000
D) $8,000

Accepted Answer

The answer of Dorchester Company purchased a new van for...

Question 5

A factory machine was purchased for $20,000 on March 1, 2017. It was estimated that it would have a $4,000 residual value at the end of its 5-year useful life. It was also estimated that the machine would be run 25,000 hours in the 5 years. If the actual number of machine hours run in 2017 was 4,000 hours and the company uses the units-of-production method of depreciation, the amount of depreciation expense for 2017 would be
A) $2,133.
B) $2,560.
C) $3,200.
D) $4,000.

Accepted Answer

First, we need to calculate the depreciation rate per unit of production:

Depreciation rate = (Cost - Residual value) / Estimated total units of production
Depreciation rate = ($20,000 - $4,000) / 25,000 = $16,000 / 25,000 = $0.64 per unit

Then, we can calculate the depreciation expense for 2017 based on the actual units produced:

Depreciation expense = Actual units produced in 2017 x Depreciation rate per unit
Depreciation expense = 4,000 x $0.64 = $2,560

Therefore, the answer is B.

Question 6

Units-of-production is an appropriate depreciation method to use when
A) it is impossible to determine the productivity of the asset.
B) the asset's use will be constant over its useful life.
C) the productivity of the asset varies significantly from one period to another.
D) the company is a manufacturing company.

Accepted Answer

Units-of-production is an appropriate depreciation method to use when the productivity of the asset varies significantly from one period to another. This method bases the depreciation expense on the actual usage/output of the asset. This makes it a good fit for equipment that is used more heavily some years than others.

Question 7

Bay of Fundy Company uses the units-of-production method in calculating depreciation. A new piece of equipment is purchased for $18,000 that will produce an estimated 100,000 units over its useful life. Estimated residual value at the end of its useful life is $2,000. What is the depreciable cost per unit?
A) $1.60
B) $1.80
C) $0.16
D) $0.18

Accepted Answer

The answer of Bay of Fundy Company uses the units-of-production...

Question 8

Dorchester Company purchased a new van for floral deliveries on July 1, 2017. The van cost $20,000 with an estimated life of 5 years and $5,000 residual value at the end of its useful life. The double diminishing-balance method of depreciation will be used. What is the balance of the accumulated depreciation account at the end of 2018?
A) $4,800
B) $6,400
C) $10,400
D) $4,000

Accepted Answer

The double diminishing-balance method calculates depreciation by doubling the straight-line rate. The straight-line rate is 1/5 = 20%, so double is 40%. For 2017, depreciation is $20,000 * 40% * 1/2 year = $4,000. For 2018, depreciation is ($20,000 - $4,000) * 40% = $6,400. Total accumulated depreciation by end of 2018 is $4,000 + $6,400 = $10,400.

Question 9

The depreciation method that applies a constant percentage to the carrying amount of an asset in calculating depreciation is
A) straight-line.
B) units-of-production.
C) diminishing-balance.
D) perpetual-fair value.

Accepted Answer

The depreciation method that applies a constant percentage to the carrying amount of an asset in calculating depreciation is the diminishing-balance method.

Question 10

The calculation of depreciation using the diminishing-balance method
A) ignores residual value in determining the amount to which a constant rate is applied.
B) multiplies a constant percentage times the previous year's depreciation expense.
C) yields an increasing depreciation expense each period. 
D) multiplies a diminishing percentage times a constant carrying amount.

Accepted Answer

The answer of The calculation of depreciation using the diminishing-balance...

Question 11

A long-lived asset cost $24,000 and is estimated to have a $3,000 residual value at the end of its 8-year useful life. The annual depreciation expense recorded for the third year using the double diminishing-balance method would be
A) $2,010.
B) $3,375.
C) $2,953.
D) $2,297.

Accepted Answer

The double declining balance method accelerates depreciation, applying a constant rate to the declining book value of the asset each year. To calculate the depreciation expense for the third year, follow these steps:1. Determine the depreciation rate. Since the useful life is 8 years, the straight-line depreciation rate is 1/8, or 12.5%. For the double declining balance method, double this rate: 12.5% * 2 = 25%.2. Calculate depreciation for the first year: $24,000 * 25% = $6,000.3. Subtract the first year's depreciation from the cost to find the book value at the beginning of the second year: $24,000 - $6,000 = $18,000.4. Calculate the second year's depreciation: $18,000 * 25% = $4,500.5. Subtract the second year's depreciation from the book value at the beginning of the second year to find the book value at the beginning of the third year: $18,000 - $4,500 = $13,500.6. Calculate the third year's depreciation: $13,500 * 25% = $3,375.Therefore, the correct answer is B) $3,375.

Question 12

Which depreciation method is most frequently used in businesses today?
A) straight-line
B) diminishing-balance
C) units-of-production
D) revaluation

Accepted Answer

The straight-line method is the most common and simplest depreciation method used in businesses today. It is also the easiest to understand and calculate, making it a popular choice for financial reporting purposes.

Question 13

On October 1, 2017, Marshwinds Wind Turbine Company places a new asset into service. The cost of the asset is $8,000 with an estimated 5-year life and $2,000 residual value at the end of its useful life. What is the depreciation expense for 2017 if Marshwinds Wind Turbine Company uses the straight-line method of depreciation?
A) $300
B) $1,600
C) $400
D) $800

Accepted Answer

The answer of On October 1, 2017, Marshwinds Wind Turbine...

Question 14

Management should select the depreciation method that
A) is easiest to apply.
B) best measures the long-lived asset's fair value over its useful life.
C) best measures the long-lived asset's contribution to revenue over its useful life.
D) has been used most often in the past by the company.

Accepted Answer

The correct depreciation method should best measure the long-lived asset's contribution to revenue over its useful life, as this approach aligns the expense recognition with the revenue generated, adhering to the matching principle in accounting.

Question 15

On October 1, 2017, Marshwinds Wind Turbine Company places a new asset into service. The cost of the asset is $8,000 with an estimated 5-year life and $2,000 residual value at the end of its useful life. What is the carrying amount of the long-lived asset on the December 31, 2017, balance sheet assuming that Marshwinds Wind Turbine Company uses the double diminishing-balance method of depreciation?
A) $5,200
B) $6,000
C) $7,200
D) $7,600

Accepted Answer

The double diminishing-balance method of depreciation is also known as the 200% declining balance method. This method applies a constant rate of double the straight-line depreciation rate to the declining book value of the asset each year. The straight-line depreciation rate is calculated as (Cost - Residual Value) / Useful Life.

In this case, the straight-line depreciation rate is (8,000 - 2,000) / 5 = $1,200 per year.
The double declining balance rate is 2 * 1/5 = 40%.
The depreciation expense for the first year is $8,000 * 40% = $3,200.
The carrying amount on December 31, 2017, is $8,000 - $3,200 = $4,800.
However, since the residual value is $2,000, the asset cannot be depreciated below this value.
Therefore, the carrying amount on December 31, 2017, is $4,800 + $2,000 = $6,800.
Thus, the correct answer is C) $7,200.

Question 16

The diminishing-balance method of depreciation produces a(n)
A) decreasing depreciation expense each period.
B) increasing depreciation expense each period.
C) decreasing percentage rate each period.
D) constant amount of depreciation expense each period.

Accepted Answer

The diminishing-balance method of depreciation produces a decreasing depreciation expense each period. This is because the depreciation expense is based on a fixed percentage of the remaining balance of the asset, which decreases each period as the asset is gradually depreciated.

Question 17

A company purchased a delivery truck for $60,000. It is estimated that the truck will have a $10,000 residual value at the end of its estimated 5-year useful life. If the company uses the double diminishing-balance method of depreciation, the amount of annual depreciation recorded for the second year after purchase would be
A) $9,600.
B) $24,000.
C) $14,400.
D) $12,000.

Accepted Answer

First, we need to calculate the double diminishing-balance depreciation rate, which is 1/n times 2, where n is the useful life in years. In this case, the rate is 1/5 times 2, which equals 0.4 or 40%.

For the first year, the depreciation expense would be $60,000 times 40%, which equals $24,000. The book value of the truck at the end of the first year would be $60,000 minus $24,000, which equals $36,000.

For the second year, we use the book value of $36,000 as the basis for depreciation. The depreciation expense would be $36,000 times 40%, which equals $14,400. The book value of the truck at the end of the second year would be $36,000 minus $14,400, which equals $21,600.

Therefore, the amount of annual depreciation recorded for the second year after purchase would be $14,400.

Question 18

A long-lived asset was purchased on January 1 for $30,000 with an estimated residual value of $6,000 at the end of its useful life. The current year's depreciation expense is $3,000 calculated on the straight-line basis and the balance of the accumulated depreciation account at the end of the year is $15,000. The remaining useful life of the asset is
A) 10 years.
B) 8 years.
C) 5 years.
D) 3 years.

Accepted Answer

The answer of A long-lived asset was purchased on January...

Question 19

Which of the following methods of calculating depreciation uses measures other than time?
A) straight-line
B) diminishing-balance
C) units-of-production
D) none of these

Accepted Answer

Units-of-production method calculates depreciation based on the usage of the asset rather than time. It considers the number of units produced or hours used to determine depreciation, making it a suitable choice for assets whose usage varies significantly from year to year.

Question 20

A company purchased factory equipment on June 1, 2017 for $48,000. It is estimated that the equipment will have a $6,000 residual value at the end of its 10-year useful life. Using the straight-line method of depreciation, the amount to be recorded as depreciation expense at December 31, 2017 is
A) $4,800.
B) $4,200.
C) $2,450.
D) $6,000.

Accepted Answer

The annual depreciation expense is calculated as ($48,000 - $6,000) / 10 = $4,200. Since the equipment was purchased on June 1, 2017, the depreciation for 2017 is for 7 months: $4,200 * (7/12) = $2,450.

Quiz 9: Long-Lived Assets

Under International Financial Reporting Standards, the models which companies can choose to account for their long-lived assets are

A company purchased office equipment for $10,000 and estimated a residual value of $2,000 at the end of its 4-year useful life. The constant percentage to be applied against carrying amount each year if the double diminishing-balance method is used is

Units-of-production is an appropriate depreciation method to use when

The depreciation method that applies a constant percentage to the carrying amount of an asset in calculating depreciation is

The calculation of depreciation using the diminishing-balance method

A long-lived asset cost $24,000 and is estimated to have a $3,000 residual value at the end of its 8-year useful life. The annual depreciation expense recorded for the third year using the double diminishing-balance method would be

Which depreciation method is most frequently used in businesses today?

Management should select the depreciation method that

The diminishing-balance method of depreciation produces a(n)

Which of the following methods of calculating depreciation uses measures other than time?

A company purchased factory equipment on June 1, 2017 for $48,000. It is estimated that the equipment will have a $6,000 residual value at the end of its 10-year useful life. Using the straight-line method of depreciation, the amount to be recorded as depreciation expense at December 31, 2017 is