Question 1

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 frequently used depreciation method in businesses today because it is simple to calculate and apply, spreading the cost of an asset evenly over its useful life.

Question 2

Use of straight-line depreciation in comparison to the diminishing-balance method results in
1) a greater amount of depreciation in the earlier years of an asset's useful life.
2) a greater amount of depreciation in the later years of an asset's useful life.
3) an equal amount of depreciation over an asset's total useful life.
A) 1.
B) 2.
C) 3.
D) both 2 and 3.

Accepted Answer

The straight-line method spreads the cost of the asset evenly over its useful life, resulting in equal annual depreciation expenses, whereas the diminishing-balance method results in higher depreciation expenses in the early years and lower expenses in the later years. Over the total useful life of an asset, both methods will depreciate the asset to its salvage value, resulting in an equal total depreciation amount.

Question 3

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

The units-of-production method calculates depreciation based on the actual usage or production levels of the asset, rather than the passage of time.

Question 4

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 diminishing-balance method of depreciation applies a constant rate to the declining book value of the asset each year, not to its original cost or a constant carrying amount. This method does not consider the residual value in calculating the depreciation expense for the year, but it does ensure that the asset is not depreciated below its residual value over its useful life. Choices B, C, and D are incorrect descriptions of how the diminishing-balance method works.

Question 5

Rockport Company purchased equipment for $30,000 on January 1, 2013, 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 2015 will be
A) $6,000.
B) $4,444.
C) $4,800.
D) $2,400.

Accepted Answer

The diminishing-balance method of depreciation allocates more depreciation expense to the early years of an asset's life. The depreciation rate is applied to the book value of the asset, which is the cost of the asset minus the accumulated depreciation. In this case, the depreciation rate is 200% / 3 = 66.67%. The depreciation expense for 2015 is $30,000 * 66.67% * 2/3 = $4,444.

Question 6

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 results in a decreasing depreciation expense each period because it applies a constant rate to a decreasing book value.

Question 7

Dorchester Company purchased a new van for floral deliveries on July 1, 2014. 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 2014?
A) $4,000
B) $3,000
C) $6,000
D) $8,000

Accepted Answer

Depreciation expense for 2014 = (20,000 - 5,000) x 40% x 1/2 = $4,000

Question 8

Dorchester Company purchased a new van for floral deliveries on July 1, 2014. 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 2015?
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 the double rate is 40%. For 2014, depreciation is $20,000 * 40% * 1/2 = $4,000 (half-year). For 2015, depreciation is ($20,000 - $4,000) * 40% = $6,400. Accumulated depreciation at the end of 2015 is $4,000 + $6,400 = $10,400.

Question 9

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 10

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

Depreciable cost = $18,000 - $2,000 = $16,000Depreciable cost per unit = $16,000 / 100,000 units = $0.16

Question 11

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

The units-of-production method of depreciation is most appropriate when the wear and tear on an asset is more closely related to how much it is used rather than the passage of time. This method calculates depreciation based on the asset's output or usage, making it suitable for assets whose productivity varies significantly from one period to another.

Question 12

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 13

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 diminishing-balance method applies a constant percentage to the carrying amount (book value) of an asset each year, resulting in decreasing depreciation expenses over the asset's useful life.

Question 14

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 IFRS, companies can choose between the cost model and the revaluation model to account for their long-lived assets. The cost model involves carrying the asset at its cost less any accumulated depreciation and impairment losses, while the revaluation model allows for the asset to be carried at a revalued amount, which is its fair value at the date of revaluation less any subsequent accumulated depreciation and impairment losses.

Question 15

A factory machine was purchased for $20,000 on March 1, 2014. 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 2014 was 4,000 hours and the company uses the units-of-production method of depreciation, the amount of depreciation expense for 2014 would be
A) $2,133.
B) $2,560.
C) $3,200.
D) $4,000.

Accepted Answer

The units-of-production method calculates depreciation based on the actual usage of the asset. The depreciation per hour is calculated as (Cost - Residual Value) / Total Estimated Hours = ($20,000 - $4,000) / 25,000 hours = $0.64 per hour. For 4,000 hours of use in 2014, the depreciation expense is 4,000 hours * $0.64 per hour = $2,560.

Question 16

On October 1, 2014, 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 2014 if Marshwinds Wind Turbine Company uses the straight-line method of depreciation?
A) $300
B) $1,600
C) $400
D) $800

Accepted Answer

The straight-line method of depreciation allocates the cost of an asset evenly over its useful life. The depreciation expense for 2014 is calculated as follows:Depreciation expense = (Cost of asset - Residual value) / Useful life= ($8,000 - $2,000) / 5= $6,000 / 5= $1,200

Question 17

On October 1, 2014, 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, 2014, 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 answer of On October 1, 2014, Marshwinds Wind Turbine...

Question 18

The carrying amount of a long-lived asset is the difference between the
A) replacement cost of the asset and its cost.
B) cost of the asset and the amount of depreciation expense for the year.
C) cost of the asset and the accumulated depreciation to date.
D) proceeds received from the sale of the asset and its original cost.

Accepted Answer

The carrying amount of a long-lived asset is calculated as the cost of the asset minus the accumulated depreciation to date. This reflects the asset's book value over time as it depreciates.

Question 19

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 20

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

The double declining balance method of depreciation involves doubling the straight-line depreciation rate. The straight-line depreciation rate for a 5-year useful life is 20% (100% / 5 years). Doubling this gives a depreciation rate of 40% per year. In the first year, the depreciation would be 40% of $60,000, which is $24,000. This leaves a book value of $36,000 ($60,000 - $24,000). In the second year, the depreciation would again be 40% of the remaining book value, which is 40% of $36,000, equaling $14,400.

Quiz 9: Long-Lived Assets

Which depreciation method is MOST frequently used in businesses today?

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

The calculation of depreciation using the diminishing-balance method

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

Management should select the depreciation method that

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

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

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

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

The carrying amount of a long-lived asset is the difference between the