Question 1

Using MACRS rates for a 3,5,7,and 10-year property,what is the percentage for the depreciable rate?

Accepted Answer

The Modified Accelerated Cost Recovery System (MACRS) allows for the depreciation of assets over a specified life. The system uses different depreciation rates for different categories of assets. For 3, 5, 7, and 10-year property categories, the 200 percent declining balance method is used, which accelerates the depreciation rate.

Question 2

A piece of equipment is purchased for $78,000 on January 1.It has a 5-year life and a salvage value of $8,000.Compute the annual depreciation expense using the double-declining-balance method for all 5 years.

Accepted Answer

The answer of A piece of equipment is purchased for...

Question 3

What would the accumulated depreciation at the end of 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

Straight-line method means that the same amount of depreciation will be charged every year. To find out the annual depreciation charge, we need to subtract the residual value from the cost, and then divide by the number of years of expected life:
($5,000 - $1,000) / 4 = $1,000
So, the annual depreciation charge is $1,000. At the end of year 3, the accumulated depreciation will be:
3 years × $1,000 = $3,000. Therefore, the answer is C.

Question 4

Yamara Company purchased a $75,000 machine at the beginning of the year.The machine is expected to have a useful life of 5 years or 40,000 operating hours and a residual value of $15,000.The machine was used for 6,000 hours in the first year and 4,400 hours in the second year.Compute the amount of depreciation expense for the first and second years under each of the methods below.
 $\begin{array}{llcc}
  \text { Year 1 }  & \text { Year2}& \text { Method }
\end{array}$ $\begin{array}{llll}
  \text {a)}\$\underline{\quad\quad}&\$\underline{\quad\quad}& \text { Straight-line }   \
 \text {b)}\$\underline{\quad\quad}&\$\underline{\quad\quad}& \text { Units-of-production } \
 \text {c)}\$\underline{\quad\quad}&\$\underline{\quad\quad}&\text {  Double-declining-balance} \
\end{array}$

Accepted Answer

The answer of Yamara Company purchased a $75,000 machine at...

Question 5

To calculate the double-declining-balance rate,you would divide 2 by the number of years of useful life.

Accepted Answer

This statement is true.

Question 6

Accumulated depletion should be reported as a(an)________ on the income statement.

Accepted Answer

The answer of Accumulated depletion should be reported as a(an)________...

Question 7

According to the MACRS tax rate table,the following classes use straight-line depreciation:

Accepted Answer

According to the MACRS tax rate table, residential rental property uses straight-line depreciation. Automobiles use accelerated depreciation methods and railroad tracks and race horses are not even included as depreciable assets in the MACRS system.

Question 8

A company purchased a new delivery van on January 1,2012 for $25,000.The company expects to use the van for 5 years and then sell it for $5,000.Complete the following depreciation table assuming straight-line depreciation:
 $\begin{array} { | c | c | c | c | c | } 
\hline \begin{array} { c } 
\text { End of } \
\text { Year }
\end{array} & \begin{array} { c } 
\text { Cost of Delivery } \
\text { Van }
\end{array} & \begin{array} { c } 
\text { Depreciation } \
\text { Expense }
\end{array} & \begin{array} { c } 
\text { Accumulated } \
\text { Depreciation, End } \
\text { of Year }
\end{array} & \begin{array} { c } 
\text { Book Value, End of } \
\text { Year }
\end{array} \
\hline 1 & & & & \
\hline 2 & & & & \
\hline 3 & & & & \
\hline 4 & & & & \
\hline 5 & & & & \
\hline
\end{array}$

Accepted Answer

The answer of A company purchased a new delivery van...

Question 9

What would be the depreciation expense in year 1,using units-of-production,for a molding machine that cost $18,000,had a useful life of 3 years,no residual value,and an estimated total machine hours of 36,000? Production in year 1 was 10,000 hours.

Accepted Answer

The answer of What would be the depreciation expense in...

Question 10

The units-of-production method does not take into account the passage of time.

Accepted Answer

The units-of-production method of depreciation is based on the output or usage of the asset, rather than the passage of time.

Question 11

Assume an asset costing $72,000 is expected to produce 400,000 units and have a salvage value of $6,000.During year 1,75,000 units were produced; during year 2,68,000 units were produced; and during year 3,70,000 units were produced.Using units-of-production,compute the depreciation expense for each of the three years.

Accepted Answer

The answer of Assume an asset costing $72,000 is expected...

Question 12

Talarico's Subs purchased a new van for $25,000,its estimated useful life at 100,000 miles,residual value of $5,000.The van was driven 15,000 miles in year 1.What is the depreciation expense in year 1?

Accepted Answer

The depreciation expense is calculated using the straight-line method: (Cost - Residual Value) / Useful Life. Here, it's ($25,000 - $5,000) / 100,000 miles = $0.20 per mile. For 15,000 miles, the depreciation is 15,000 miles * $0.20/mile = $3,000.

Question 13

A plant asset is fully depreciated when the book value is:

Accepted Answer

When the book value of a plant asset is equal to the salvage value, it means that all of its cost has been fully depreciated, and its value is now its scrap or salvage value. Therefore, it is considered fully depreciated. The other options are not relevant to determining when an asset is fully depreciated.

Question 14

What would be the depreciation expense in year 1,using units-of-production,for a molding machine that cost $18,000,had a useful life of 3 years,and an estimated total machine hours of 36,000? The salvage value is $3,000 and production in year 1 was 10,000 hours.

Accepted Answer

First, we need to calculate the depreciation rate per hour: 
Depreciation rate per hour = (cost - salvage value) / estimated total machine hours 
Depreciation rate per hour = ($18,000 - $3,000) / 36,000 = $0.4167 per hour

Then, we can calculate the depreciation expense for year 1: 
Depreciation expense = depreciation rate per hour x production in year 1 
Depreciation expense = $0.4167 x 10,000 = $4,167

Therefore, the answer is B.

Question 15

Double-declining-balance method is used in the first year when straight-line should be used.This error would cause:

Accepted Answer

The double-declining-balance method results in higher depreciation expenses in the early years of an asset's life, compared to the straight-line method. If the double-declining-balance method is used when the straight-line method should be used, the depreciation expense in the first year will be overstated. This will result in the period's net income being understated because higher depreciation expenses will be recorded compared to what should have been recorded using the straight-line method. Therefore, the best choice is option B.

Question 16

The amortization method and double-declining-balance method are both accelerated depreciation methods.

Accepted Answer

The amortization method is used for intangible assets, while the double-declining-balance method is an accelerated depreciation method used for tangible assets.

Question 17

A car is purchased for $25,000 on January 1.It has a 4-year life and a salvage value of $1,000.Compute the annual depreciation expense using the double-declining-balance method for all 4 years.

Accepted Answer

The answer of A car is purchased for $25,000 on...

Question 18

Tender Years purchased a new van on January 1,200x,for $40,000.The life of the van is 4 years or 100,000 miles,with an estimated residual value of $5,000.During the first year,the van was driven 20,000 miles.Compute the depreciation expense for the first year applying each of the methods below.
a)________ Straight-line
b)________ Units-of-production
c)________ Double-declining-balance

Accepted Answer

The answer of Tender Years purchased a new van on...

Question 19

What would the book value be at the end of 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 spreads the cost of the asset evenly over its useful life. The annual depreciation expense is calculated as (Cost - Residual Value) / Useful Life. For this computer system, the annual depreciation is ($5,000 - $1,000) / 4 = $1,000. After 3 years, the total depreciation is 3 * $1,000 = $3,000. Thus, the book value at the end of year 3 is Cost - Accumulated Depreciation = $5,000 - $3,000 = $2,000.

Question 20

Net income is affected by the depreciation method used.

Accepted Answer

Depreciation is the method of allocating the cost of an asset over its useful life. Different methods of depreciation can result in different amounts of depreciation expense, which ultimately affects the net income of a company. Generally, using an accelerated depreciation method (such as the double declining balance method) will result in higher depreciation expense and lower net income in the earlier years of the asset's life, while using a straight-line depreciation method will result in a more equal depreciation expense and net income over the asset's useful life.

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