Question 1

Salvage value was ignored when originally calculating the units-of-production depreciation.This error would cause:

Accepted Answer

Ignoring salvage value when calculating units-of-production depreciation will result in higher depreciation expenses, leading to lower net income for the period. As a result, the period's net income will be understated.

Question 2

The depreciation method that does not base the expense on the passage of time but on the level of use is:

Accepted Answer

The units-of-production method allocates the cost of an asset based on the amount of production or use it generates, rather than the passage of time (as in straight-line) or predetermined rates (as in modified accelerated cost recovery or double-declining-balance). Therefore, it is the only method listed that fits the description given in the question.

Question 3

The cost of equipment is expensed:

Accepted Answer

The cost of equipment is capitalized when it is first purchased and then gradually expensed over the periods in which it benefits the company. This is known as depreciation expense. Option A is incorrect because the time of payment does not necessarily coincide with the period when the equipment benefits the company. Option C is incorrect because the cost cannot be immediately expensed in the period it is purchased. Option D is incorrect because the cost is not expensed when the equipment is sold, but is instead adjusted for any gain or loss on the sale.

Question 4

What would the depreciation expense be in year 3 for a computer system using the straight-line method when cost is $5,000,residual value is $1,000,and the expected life is 4 years?

Accepted Answer

The straight-line depreciation method calculates annual depreciation by subtracting the residual value from the cost and dividing by the useful life. Here, ($5,000 - $1,000) / 4 = $1,000 per year. Thus, the depreciation expense in year 3 is $1,000.

Question 5

When calculating declining balance depreciation,the straight-line rate was used instead of double the straight-line rate.In the first year of ownership,this error would cause:

Accepted Answer

When calculating declining balance depreciation using the straight-line rate instead of double the straight-line rate, the depreciation expense in the first year would be understated because declining balance depreciation front-loads the depreciation expense, meaning more depreciation is charged in the early years of an asset's life. Using the straight-line rate would result in a lower initial depreciation expense, which would be corrected in later years when the declining balance rate exceeds the straight-line rate.

Question 6

Which depreciation method uses the current book value in determining depreciation?

Accepted Answer

Double-declining balance is the depreciation method that uses the current book value in determining depreciation. This method calculates depreciation as a percentage of the remaining book value each year, meaning that the depreciation expense decreases over time as the asset approaches its salvage value.

Question 7

J.Long purchased computer equipment for $5,000 on January 1,200x.It has a residual value of $500 with a useful life of 5 years.After the appropriate adjusting entries are made,the book value of the asset on December 31,200x,under the double-declining-balance method,is:

Accepted Answer

The answer of J.Long purchased computer equipment for $5,000 on...

Question 8

Assuming a useful life of five years,which of the following methods would most likely result in the least depreciation in the first year?

Accepted Answer

Straight-line method depreciates assets evenly over their useful life, resulting in a steady depreciation expense each year. In contrast, MACRS and double-declining-balance methods front-load depreciation, resulting in a higher depreciation expense in the earlier years. Therefore, using straight-line method would result in the least depreciation in the first year.

Question 9

Rockwell Industries purchased a plant asset to be used in its business.The expenditures included:
 $\begin{array}{ll}
\text { Cost of machine } & \$ 8,000 \
\text { Special concrete base to support machine } & 500 \
\text { Freight charges } & 1,000 \
\text { Repair cost of damage incurred during installation } & 300
\end{array}$
 The Machine account will be debited for ________.

Accepted Answer

The answer of Rockwell Industries purchased a plant asset to...

Question 10

Jason Moore purchased computer equipment for $2,800 on January 1,2012.It has a residual value of $400 with a useful life of 4 years.After the appropriate adjusting entries have been made,the balance in Accumulated Depreciation account for this asset on January 1,2014,under the straight-line method,should be:

Accepted Answer

The straight-line depreciation method calculates annual depreciation as (Cost - Residual Value) / Useful Life. For this asset: ($2,800 - $400) / 4 = $600 per year. By January 1, 2014, two years of depreciation have occurred, so the accumulated depreciation is 2 * $600 = $1,200.

Question 11

What would be the depreciation expense using double-declining-balance to compute the expense for year 2 of a machine costing $15,000,when residual value is $5,000,and useful life is 5 years?

Accepted Answer

The double-declining-balance method accelerates depreciation. First, calculate the straight-line depreciation rate (100% / 5 years = 20%). Double this rate for the double-declining method (20% * 2 = 40%). For year 1, depreciation is 40% of $15,000, which is $6,000, leaving a book value of $9,000. For year 2, apply the 40% rate to the new book value ($9,000), resulting in a depreciation expense of $3,600.

Question 12

The depreciation method which charges more expense in earlier years than in later years is the:

Accepted Answer

The double declining-balance method accelerates depreciation expense in earlier years, eventually leveling off to the straight-line method in later years. The straight-line method charges equal expense each year, while the units-of-production method (as the name suggests) charges a variable amount based on the actual usage of the asset. Therefore, B is the best choice as it matches the description of the method that charges more expense in earlier years.

Question 13

In the last year of useful life,the salvage value was ignored using double-declining-balance depreciation.This error would cause:

Accepted Answer

Ignoring the salvage value in the last year of useful life when using the double-declining-balance method of depreciation would result in a depreciation expense that is too high, because normally the depreciation would be adjusted in the final year to ensure the asset's book value does not fall below its salvage value.

Question 14

Which depreciation method uses twice the straight-line rate?

Accepted Answer

Double-declining-balance is the depreciation method that uses twice the straight-line rate.

Question 15

The cost of an asset less its accumulated depreciation is called:

Accepted Answer

The cost of an asset less its accumulated depreciation is referred to as its book value.

Question 16

Straight-line depreciation is used in the first year when double-declining-balance should be used.This error would cause:

Accepted Answer

Using straight-line depreciation instead of double-declining-balance depreciation in the first year will result in less depreciation expense being recognized. This leads to higher net income than if the correct method had been used, because double-declining-balance depreciation would have resulted in a higher expense and thus lower net income.

Question 17

Josh Kindel purchased equipment for $60,000 on January 1.Its residual value is $4,000 with a useful life of 8 years.The amount of depreciation expense in the first year under the double-declining-balance method is:

Accepted Answer

The double-declining-balance method calculates depreciation by doubling the straight-line rate. The straight-line rate is 1/8 (useful life), so the double rate is 2/8 or 25%. The first year's depreciation is 25% of $60,000, which is $15,000.

Question 18

Which depreciation method does not deduct residual value when computing depreciation expense?

Accepted Answer

The double-declining-balance method does not deduct the residual value when computing the annual depreciation expense. Instead, it applies a constant rate to the depreciable base (cost less accumulated depreciation) of the asset.

Question 19

Lacy purchased equipment for $77,000 on January 1.Its residual value is $5,000 with a useful life of 9 years.The amount of depreciation expense in the first year under the straight-line method is:

Accepted Answer

First, we need to calculate the annual depreciation expense:
($77,000 - $5,000) / 9 years = $8,000 per year
Since Lacy purchased the equipment on January 1, we need to prorate this amount for the first year:
$8,000 / 12 months = $666.67 per month
To find the depreciation expense for the first year, we need to multiply the monthly amount by the number of months in the first year:
$666.67 x 12 months = $8,000
Therefore, the correct answer is option B.

Question 20

The depreciation method(s)in which an even amount of depreciation expense is taken each year is (are)called:

Accepted Answer

The straight-line method is the only depreciation method that takes an even amount of expense each year. The double declining-balance method and units-of-production method both result in varying amounts of depreciation expense each year.

Quiz 16: Accounting for Property, plant, equipment, and Intangible Assets