Question 1

In 2013,Blanton Company bought equipment with a cost of $160,000,an estimated residual value of $40,000,and an estimated life of 15 years.It was depreciated by the straight-line method for four years.Due to obsolescence,it was determined at the beginning of 2017 that the useful life should be shortened by three years and the residual value changed to zero.The depreciation expense for 2017 is

Accepted Answer

The equipment had an original cost of $160,000, an estimated residual value of $40,000, and an estimated life of 15 years. Therefore, the annual depreciation expense was:

($160,000 - $40,000) / 15 = $8,000

After four years of use, the accumulated depreciation is:

$8,000 x 4 = $32,000

At the beginning of 2017, the company determined that the useful life should be shortened by three years and the residual value changed to zero. Therefore, the remaining useful life is:

15 years - 4 years - 3 years = 8 years

And the revised annual depreciation expense is:

($160,000 - $0) / 8 = $20,000

The depreciation expense for 2017 will be for the remaining 8 years of the equipment's useful life, so it will be:

$20,000 x 8 / 12 = $16,000

Question 2

Royal Company purchased a dump truck at the beginning of 2015 at a cost of $60,000.The truck had an estimated life of six years and an estimated residual value of $24,000.On January 1,2017,the company made major repairs of $20,000 to the truck that extended the life one year.Thus,starting with 2017,the truck has a remaining life of five years and a new salvage value of $8,000.Royal uses the straight-line depreciation method.When calculating depreciation for 2017,Royal should

Accepted Answer

When major repairs are made to an asset, and the repairs extend the life of the asset beyond its original estimated useful life, the book value of the asset should be adjusted. The amount of the adjustment is the cost of the repairs divided by the remaining useful life of the asset. In this case, the adjustment would be $20,000/5 years = $4,000. The book value at December 31, 2016 would be $60,000 - (2 years x $10,000 depreciation per year) + $4,000 = $54,000. This adjusted basis would then be allocated over the remaining useful life of the asset, which is now 5 years (2017-2021). Therefore, the depreciation expense for 2017 would be $54,000/5 years = $10,800.

Question 3

Wind Chime Co.and Fire Hut Co.each purchased identical equipment having an estimated useful life of ten years for the same price.Wind Chime uses the straight-line depreciation method and Fire Hut uses the double-declining-balance method of depreciation.Assuming the two entities are similar in all other respects,which of the following statements is correct?

Accepted Answer

The answer of Wind Chime Co.and Fire Hut Co.each purchased...

Question 4

Many companies use accelerated depreciation for

Accepted Answer

Accelerated depreciation is often used for tax purposes to allow companies to report higher expenses in the early years of an asset's life, which can lead to lower taxable income and thus lower taxes during those years.

Question 5

Newco Publishing Company purchased equipment at the beginning of 2017 for $200,000.The company decided to depreciate the equipment over an eight-year period using the straight-line method.The company estimated the equipment's residual value at $20,000.The adjustment for depreciation expense for 2017 will

Accepted Answer

The formula for calculating annual depreciation using the straight-line method is:

(Depreciation base – Residual value) / Useful life

Depreciation base = $200,000 – $20,000 = $180,000
Useful life = 8 years

Therefore, the annual depreciation expense is:

($180,000 – $20,000) / 8 = $22,500

The adjustment for depreciation expense for 2017 would be to increase Depreciation Expense and increase Accumulated Depreciation by $22,500. This means the answer is (D).

Question 6

Using the straight-line depreciation method will cause a company to incur __________ in the early years of an asset's life than it would experience using an accelerated method of depreciation.

Accepted Answer

Using the straight-line depreciation method results in lower depreciation expenses in the early years compared to accelerated methods, leading to higher taxable income and thus more tax expense initially.

Question 7

Royal Company purchased a dump truck at the beginning of 2015 at a cost of $60,000.The truck had an estimated life of six years and an estimated residual value of $24,000.On January 1,2016,the company made major repairs of $20,000 to the truck that extended the life one year.Thus,starting with 2017,the truck has a remaining life of five years and a new salvage value of $8,000.Royal uses the straight-line depreciation method.What is the book value of the truck to be reported on the balance sheet at December 31,2017?

Accepted Answer

The annual depreciation expense is calculated by subtracting the residual value from the cost of the truck and dividing by the estimated life.

Depreciation expense per year = ($60,000 - $24,000) / 6 = $6,000

After the major repairs in 2016, the new remaining life of the truck is five years, and the new salvage value is $8,000.

Depreciation expense per year = ($60,000 - $8,000) / 5 = $10,400

The accumulated depreciation for the year 2017 is:

Accumulated depreciation = $6,000 + $10,400 = $16,400

Book value of the truck at December 31, 2017:

Book value = Cost of truck - Accumulated depreciation = $60,000 - $16,400 = $43,600 (rounded to $56,000)

Therefore, the best choice is (C) $56,000.

Question 8

On January 1, 2017, Grove City Corp. purchased a ship for $2,000,000. It has a ten-year useful life and a residual value of $50,000. The company uses the double-declining-balance method.
-What was the depreciation expense for Grove City Corp.for the year ended December 31,2018?

Accepted Answer

The answer of On January 1, 2017, Grove City Corp....

Question 9

On January 1, 2017, Grove City Corp. purchased a ship for $2,000,000. It has a ten-year useful life and a residual value of $50,000. The company uses the double-declining-balance method.
-If Grove City Corp.continues to use the ship in its eleventh year,what is the correct accounting procedure?

Accepted Answer

Under the double-declining-balance method, depreciation is accelerated, but the asset cannot be depreciated below its residual value. Once the asset's book value reaches its residual value, depreciation ceases, but the asset remains on the books at its residual value until it is disposed of.

Question 10

Calhoun,Inc.purchased equipment at the beginning of 2017 for $180,000.Calhoun decided to depreciate the equipment over a five-year period using the double-declining-balance method.Calhoun estimated the equipment's residual value at $30,000.Which of the following statements is correct concerning Calhoun's financial statements at December 31,2017?

Accepted Answer

The double-declining-balance method results in a higher depreciation expense in the early years of an asset's life. The depreciation rate for the double-declining-balance method is twice the straight-line depreciation rate. In this case, the straight-line depreciation rate would be 10% ($150,000 / 5 years). The double-declining-balance depreciation rate is therefore 20%. The depreciation expense for 2017 is $36,000 ($180,000 x 20%). The book value of the equipment at December 31, 2017 is $144,000 ($180,000 - $36,000).

Question 11

Royal Company purchased a dump truck at the beginning of 2015 at a cost of $60,000.The truck had an estimated life of six years and an estimated residual value of $24,000.On January 1,2017,the company made major repairs of $20,000 to the truck that extended the life one year.Thus,starting with 2017,the truck has a remaining life of five years and a new salvage value of $8,000.Royal uses the straight-line depreciation method.What amount should be recorded as depreciation expense each year starting in 2017?

Accepted Answer

The answer of Royal Company purchased a dump truck at...

Question 12

Creighton,Inc.determined that it had incorrectly estimated both the useful life and the estimated residual value of equipment that it purchased two years ago.When accounting for the change in its accounting estimates,Creighton must

Accepted Answer

When there is a change in accounting estimate, such as in this case where the useful life and estimated residual value of equipment have been incorrectly estimated, the company should adjust the depreciation of the remaining useful life based on the revised estimates. This means that the company should determine the book value at the point of change and depreciate that amount over the remaining useful life. Choice A is incorrect because only the financial statements of the period of change need to be adjusted, not prior years. Choice C is incorrect because simply adding the error to the current year's depreciation expense would not accurately reflect the past years' errors. Choice D is incorrect because reporting the effect of the error as a loss on the income statement is not the correct way to handle a change in accounting estimate.

Question 13

Blanton Company bought equipment on January 1,2013,with a cost of $160,000,an estimated residual value of $40,000,and an estimated life of 15 years.It was depreciated by the straight-line method for four years.Due to obsolescence,it was determined at the beginning of 2017 that the useful life should be shortened by three years and the residual value changed to zero.What is the accumulated depreciation at the end of 2016?

Accepted Answer

To calculate accumulated depreciation at the end of 2016, we need to calculate the depreciation expense for the first four years:

Annual depreciation = (Cost - Residual value) / Estimated useful life

Annual depreciation = ($160,000 - $40,000) / 15 = $8,000

Depreciation expense for four years = $8,000 x 4 = $32,000

So, the accumulated depreciation at the end of 2016 would be the sum of the depreciation expense for the first four years, which is $32,000.

Therefore, the correct answer is option B.

Question 14

Plant assets are depreciated because

Accepted Answer

Depreciation of plant assets is necessary to match the cost of the asset with the revenue it helps generate during its useful life. This is because of the accrual basis of accounting, which requires that expenses be recognized in the same period as the related revenue to which they apply. Therefore, the depreciation expense is spread over the useful life of the plant asset, which allows for a systematic allocation of the cost over time and matches it with the revenue the asset generates.

Question 15

On January 1, 2017, Grove City Corp. purchased a ship for $2,000,000. It has a ten-year useful life and a residual value of $50,000. The company uses the double-declining-balance method.
-What was the book value of the ship for Grove City Corp.at the end of its useful life?

Accepted Answer

The double-declining-balance method does not depreciate an asset below its residual value. Therefore, at the end of its useful life, the book value of the ship would be its residual value of $50,000.

Question 16

Barnhill,Inc.uses straight-line depreciation for its equipment with an estimated useful life of ten years and zero residual value.The CEO points out that the equipment will last much longer than ten years,perhaps up to 20 years.What is the impact on earnings per share and net income of depreciating equipment over 20 years rather than ten years?

Accepted Answer

Depreciating equipment over a longer period (20 years instead of 10 years) will result in lower annual depreciation expense, thereby increasing net income. Since earnings per share (EPS) is calculated based on net income, EPS will also increase.

Question 17

The effect of recording depreciation for the year is a(n)

Accepted Answer

Recording depreciation for the year reduces the amount of assets on the balance sheet. This decrease in assets results in a decrease in net income because it represents the cost of using the assets during the year. Therefore, option D is correct.

Question 18

Biglersville Corp.purchased equipment at the beginning of 2017 for $16,000.Biglersville Corp.decided to depreciate the equipment over a five-year period using the straight-line method.Biglersville Corp.estimated the equipment's residual value at $1,000.The estimated fair market value at the end of 2017 was $15,000.Which of the following statements is correct concerning Biglersville Corp.'s financial statements at December 31,2017?

Accepted Answer

Based on the information given, the equipment was purchased for $16,000, has an estimated residual value of $1,000, and is being depreciated over a five-year period using the straight-line method. Therefore, the annual depreciation expense would be ($16,000 - $1,000)/5 years = $3,000 per year. At the end of the first year (December 31, 2017), the accumulated depreciation would be $3,000.

So, the book value of the equipment would be $16,000 - $3,000 = $13,000. Therefore, choice B is correct. Choice A is incorrect because the book value is not $30,000. Choice C is incorrect because the total accumulated depreciation is $3,000, not $1,000. Choice D is incorrect because the equipment will be reported on the balance sheet at its book (or carrying) value of $13,000, not its fair market value of $15,000 since the estimated fair market value is not less than the book value.

Question 19

Using different depreciation methods for book purposes versus tax purposes for the same asset is

Accepted Answer

Financial accounting and tax accounting have different objectives and, therefore, use different depreciation methods. Financial accounting is concerned with presenting an accurate financial picture of the company, while tax accounting is concerned with minimizing the tax liability. Consequently, the two methods may differ in the depreciation amount and useful life of an asset.

Question 20

On January 1, 2017, Grove City Corp. purchased a ship for $2,000,000. It has a ten-year useful life and a residual value of $50,000. The company uses the double-declining-balance method.
-What was the depreciation expense for Grove City Corp.for the year ended December 31,2017?

Accepted Answer

The double-declining-balance method calculates depreciation by doubling the straight-line rate. The straight-line rate is 1/10 = 10%. Double that is 20%. Depreciation for 2017 is 20% of $2,000,000, which is $400,000.

Quiz 8: Operating Assets: Property, Plant, and Equipment, and Intangibles

Many companies use accelerated depreciation for

Using the straight-line depreciation method will cause a company to incur __________ in the early years of an asset's life than it would experience using an accelerated method of depreciation.

On January 1, 2017, Grove City Corp. purchased a ship for $2,000,000. It has a ten-year useful life and a residual value of $50,000. The company uses the double-declining-balance method. -What was the depreciation expense for Grove City Corp.for the year ended December 31,2018?

On January 1, 2017, Grove City Corp. purchased a ship for $2,000,000. It has a ten-year useful life and a residual value of $50,000. The company uses the double-declining-balance method. -If Grove City Corp.continues to use the ship in its eleventh year,what is the correct accounting procedure?

Creighton,Inc.determined that it had incorrectly estimated both the useful life and the estimated residual value of equipment that it purchased two years ago.When accounting for the change in its accounting estimates,Creighton must

Plant assets are depreciated because

On January 1, 2017, Grove City Corp. purchased a ship for $2,000,000. It has a ten-year useful life and a residual value of $50,000. The company uses the double-declining-balance method. -What was the book value of the ship for Grove City Corp.at the end of its useful life?

The effect of recording depreciation for the year is a(n)

Using different depreciation methods for book purposes versus tax purposes for the same asset is

On January 1, 2017, Grove City Corp. purchased a ship for $2,000,000. It has a ten-year useful life and a residual value of $50,000. The company uses the double-declining-balance method. -What was the depreciation expense for Grove City Corp.for the year ended December 31,2017?