Question 1

George, Inc. purchased a van on May 1, 2018, for $800,000. Estimated life of the van was five years, and its estimated residual value was $80,000. George uses the straight-line method of depreciation. Prepare the journal entry to record the depreciation expense for 2018 on the van. Omit explanation.

Accepted Answer

The answer of George, Inc. purchased a van on May...

Question 2

On January 1, 2018, Sport Planes Manufacturing Corporation purchased a machine for $40,000,000. The corporation expects to use the machine for 24,000 hours over the next six years. The estimated residual value of the machine at the end of the sixth year is $40,000. The corporation used the machine for 3,600 hours in 2018 and 5,000 hours in 2019. What is the book value of the machine at the end of year 2019 if the corporation uses double-declining-balance method of depreciation? (Round your intermediate calculations.)

Accepted Answer

The answer of On January 1, 2018, Sport Planes Manufacturing...

Question 3

A truck costs $307,000 and is expected to be driven 113,000 miles during its five-year life. Residual value is expected to be zero. If the truck is driven 31,000 miles during the first year, how much depreciation should the business record under the units-of-production method? (Round any intermediate calculations to two decimal places, and your final answer to the nearest dollar.)

Accepted Answer

The answer of A truck costs $307,000 and is expected...

Question 4

When a company makes an accounting change in estimate, Generally Accepted Accounting Principles require that the company make changes to financial statements of prior years.

Accepted Answer

Changes in accounting estimates are applied prospectively and do not require adjustments to prior period financial statements.

Question 5

Adkins Bakery uses the modified half-month convention to calculate depreciation expense in the year an asset is purchased or sold. Adkins has a calendar year accounting period and uses the straight-line method to compute depreciation expense. On March 17, 2018, Adkins acquired equipment at a cost of $220,000. The equipment has a residual value of $43,000 and an estimated useful life of 4 years. What amount of depreciation expense will be recorded for the year ending December 31, 2018? (Round any intermediate calculations to two decimal places, and your final answer to the nearest dollar.)

Accepted Answer

First, calculate the annual depreciation expense using the straight-line method:

Depreciation per year = (Cost - Residual Value) / Estimated useful life 
Depreciation per year = ($220,000 - $43,000) / 4 
Depreciation per year = $44,250

Now, we need to apply the modified half-month convention. The equipment was purchased on March 17, 2018, which means that Adkins will only record 9.5 months of depreciation expense for the year ending December 31, 2018.

Depreciation expense = (Depreciation per year / 12) * number of months of use 
Depreciation expense = ($44,250 / 12) * 9.5 
Depreciation expense = $33,187.50

Rounding to the nearest dollar, the answer is $33,188. Therefore, the best choice is C.

Question 6

If a business changes the estimated useful life, or estimated residual value, of a plant asset, depreciation expense must be recalculated.

Accepted Answer

When there is a change in the estimated useful life or estimated residual value of a plant asset, this will affect the amount of depreciation expense that is recorded. Therefore, the depreciation expense must be recalculated based on the updated estimates.

Question 7

On June 30, 2018, Clooney Printers purchased a printer for $59,000. It expects the printer to last for four years and have a residual value of $6000. Compute the depreciation expense on the printer for the year ended December 31, 2018, using the straight-line method. (Round any intermediate calculations to two decimal places, and your final answer to the nearest dollar.)

Accepted Answer

The depreciation expense using the straight-line method is calculated by subtracting the residual value from the cost of the asset and then dividing by the useful life of the asset. Here, ($59,000 - $6,000) / 4 = $13,250 annual depreciation. Since the printer was purchased on June 30, 2018, only half of the year's depreciation applies for 2018, so $13,250 / 2 = $6,625.

Question 8

If an asset is disposed of during the year, there is no need to calculate depreciation from the beginning of the year of disposal to the date of disposal.

Accepted Answer

Depreciation needs to be calculated from the beginning of the year up to the date of disposal to accurately reflect the asset's usage and reduce its book value accordingly before it is removed from the accounts.

Question 9

On January 1, 2019, a corporation acquired a truck for $600,000. The residual value was estimated to be $20,000. The truck can be driven for 50,000 miles over the next three years. The actual usage of the truck was 8,640 miles for the first year. Calculate the rate of depreciation to be applied and depreciation for the first year using the units-of-production method. (Do not round your intermediate calculations.)

Accepted Answer

The answer of On January 1, 2019, a corporation acquired...

Question 10

Which of the following is true when the estimate of an asset's useful life is changed?

Accepted Answer

When the estimate of an asset's useful life is changed, the remaining depreciable book value of the asset will be spread over the asset's remaining life. This means that the depreciation expense in the current and future years will change to reflect the new estimate, but the prior years' financial statements do not need to be restated. Option A is incorrect as the new estimate affects all years remaining in the asset's life, not just the last year. Option B is incorrect as only the depreciation expense in the current and future years will be affected, not the prior years. Option C is also incorrect as restating prior years' financial statements is not required in this scenario.

Question 11

Ten O'Clock, Inc. purchased a van on January 1, 2018, for $800,000. Estimated life of the van was five years, and its estimated residual value was $90,000. Ten O'Clock uses the straight-line method of depreciation. Prepare the depreciation schedule.

Accepted Answer

The answer of Ten O'Clock, Inc. purchased a van on...

Question 12

Burton, Inc. purchased a van on January 1, 2018, for $800,000. Estimated life of the van was five years, and its estimated residual value was $90,000. Burton uses the straight-line method of depreciation. Prepare the journal entry to record the purchase of van for cash. Omit explanation.

Accepted Answer

The answer of Burton, Inc. purchased a van on January...

Question 13

On January 1, 2018, Dalton Manufacturing Corporation purchased a machine for $40,000,000. The corporation expects to use the machine for 24,000 hours over the next six years. The estimated residual value of the machine at the end of the sixth year is $40,000. The corporation used the machine for 3,600 hours in 2018 and 5,000 hours in 2019. Calculate depreciation expense for 2019 if the company uses the units-of-production method of depreciation.

Accepted Answer

The answer of On January 1, 2018, Dalton Manufacturing Corporation...

Question 14

On January 1, 2019, Sapphire Manufacturing Corporation purchased a machine for $40,000,000. The corporation expects to use the machine for 24,000 hours over the next six years. The estimated residual value of the machine at the end of the sixth year is $40,000. The schedule of usage of the machine is below.
 $$\begin{array} { | c | c | } 
\hline \text { Year } & \text { Usage } \
\hline 1 & 4,500 \
\hline 2 & 6,000 \
\hline 3 & 5,200 \
\hline 4 & 4,300 \
\hline 5 & 2,000 \
\hline 6 & 2,000 \
\hline
\end{array}$$ Prepare the depreciation schedule using the units-of-production method of depreciation.

Accepted Answer

The answer of On January 1, 2019, Sapphire Manufacturing Corporation...

Question 15

On January 1, 2018, Forrest Manufacturing Corporation purchased a machine for $40,000,000. The corporation expects to use the machine for 24,000 hours over the next six years. The estimated residual value of the machine at the end of the sixth year is $40,000. The corporation used the machine for 3,600 hours in 2018 and 5,000 hours in 2019. What is the depreciation expense for 2018 and 2019 if the corporation uses the double-declining-balance method of depreciation?

Accepted Answer

The answer of On January 1, 2018, Forrest Manufacturing Corporation...

Question 16

Carpenters, Inc., a manufacturing company, acquired equipment on January 1, 2017 for $530,000. Estimated useful life of the equipment was seven years and the estimated residual value was $14,000. On January 1, 2020, after using the equipment for three years, the total estimated useful life has been revised to nine total years. Residual value remains unchanged. The company uses the straight-line method of depreciation. Calculate depreciation expense for 2020. (Round any intermediate calculations to two decimal places, and your final answer to the nearest dollar.)

Accepted Answer

First, calculate the total depreciation up to January 1, 2020: Original cost ($530,000) - Residual value ($14,000) = $516,000 total depreciable amount. Over the original 7-year life, annual depreciation is $516,000 / 7 = $73,714.29. After 3 years, depreciation accumulated is $73,714.29 * 3 = $221,142.86. The book value on January 1, 2020, is $530,000 - $221,142.86 = $308,857.14. With the revised life of 9 total years and 3 years already used, there are 6 years remaining. The remaining depreciable amount is $308,857.14 - $14,000 (residual value) = $294,857.14. Annual depreciation for 2020 and onwards is $294,857.14 / 6 = $49,142.86, rounded to $49,143.

Question 17

A business, which has a calendar year accounting period, purchased an asset on March 1, 2018. The business disposed of the asset on August 31, 2019. For the calendar year 2019, depreciation should be calculated from January 1 to August 31.

Accepted Answer

Depreciation for the year of disposal is calculated from the beginning of the accounting period (January 1, 2019) up to the date of disposal (August 31, 2019).

Question 18

On January 1, 2019, a corporation acquired a truck for $100,000. Residual value was estimated to be $20,000. The truck can be driven for 50,000 miles over the next three years. Actual usage of the truck was recorded as 8,640 miles for the first year. Give the journal entry to record depreciation for the first year calculated as per the units-of-production method. (Do not round your intermediate calculations.)

Accepted Answer

The answer of On January 1, 2019, a corporation acquired...

Question 19

The cost of an asset is $10,000,000, and its residual value is $100,000. Estimated useful life of the asset is four years. Prepare the schedule of depreciation using the double-declining-balance method of accounting.

Accepted Answer

The answer of The cost of an asset is $10,000,000,...

Question 20

Hampton, Inc. purchased a van on January 1, 2018, for $800,000. Estimated life of the van was five years, and its estimated residual value was $90,000. Hampton uses the straight-line method of depreciation. Prepare the journal entry to record the depreciation expense for 2018 on the van. Omit explanation.

Accepted Answer

The answer of Hampton, Inc. purchased a van on January...

Quiz 9: Plant Assets, Natural Resources, and Intangibles