Question 1

Justin,Inc.purchased equipment for $100,000.The equipment had an estimated useful life of eight years and an estimated residual value of $12,000.After five years of use,the estimated residual value is changed to $18,000.Assuming straight-line depreciation,depreciation expense in year 6 would be
A)$9,000.
B)$10,250
C)$11,000.
D)$15,000.

Accepted Answer

The answer of Justin,Inc.purchased equipment for $100,000.The equipment had an...

Question 2

Which of the following is irrelevant in computing a machine's depreciation expense using the production method?
A)Actual units produced in a given period
B)Residual value
C)Estimated useful life in years
D)Estimated units produced over its life

Accepted Answer

The production method of depreciation (also known as the units of production method) calculates depreciation based on the actual usage or production of the asset rather than the passage of time. Therefore, the estimated useful life in years (C) is irrelevant to this calculation, as it focuses on the actual units produced or the asset's usage.

Question 3

A company purchases for $48,000 an asset that has a useful life of six years and no salvage value.After two years,the company spends $8,000 for a major overhaul that will extend the machine's useful life four years beyond the original six.Assuming straight-line depreciation,how much depreciation should be taken in year 3?
A)$4,000
B)$5,000
C)$5,600
D)$8,000

Accepted Answer

The original cost of the asset is $48,000 with a useful life of 6 years, resulting in an annual depreciation of $8,000 ($48,000 / 6 years). After 2 years, $16,000 ($8,000 per year for 2 years) has been depreciated. The overhaul costs $8,000, increasing the asset's total value to $40,000 ($48,000 - $16,000 + $8,000). The useful life is extended by 4 years, making it 10 years in total. By year 3, 8 years remain, so the new annual depreciation is $40,000 / 8 = $5,000.

Question 4

Davida's Delivery Service purchased a delivery van for $30,000.The van had an estimated useful life of six years and an estimated residual value of $6,000.After four years of use,the total estimated useful life is revised to seven years.Assuming straight-line depreciation,depreciation expense in year 5 would be (amounts rounded)
A)$2,667.
B)$4,667.
C)$2,000.
D)$1,143.

Accepted Answer

Using straight-line depreciation method, the depreciation expense per year is calculated as:
Depreciation expense = (cost of asset - residual value) / useful life in years

Before the revision of estimated useful life, the annual depreciation was:
($30,000 - $6,000) / 6 = $4,000

After the revision, the remaining useful life is 7 - 4 = 3 years. Therefore, the new annual depreciation expense is:
($30,000 - $6,000) / 7 = $3,000

The depreciation expense in year 5 is the same as in year 4, since there was no change in the estimated remaining useful life during that year. Thus, the depreciation expense in year 5 is:
$3,000

Question 5

When calculating a partial year's depreciation,the length of time an asset has been owned usually is rounded to the nearest month.This rounding practice is justified by the principle or rule of
A)matching.
B)materiality.
C)conservatism.
D)full disclosure.

Accepted Answer

The principle of materiality allows for the rounding of the length of time an asset has been owned to the nearest month, as the impact of the difference of a few days or weeks is not considered material enough to affect the accuracy of the financial statements. The principle of matching relates to matching expenses with the revenues they generate, whereas conservatism and full disclosure principles are not relevant to this particular situation.

Question 6

Which of the following methods ignores residual value initially but eventually considers it in the calculation of depreciation?
A)Straight-line
B)Double-declining-balance
C)Group
D)Production

Accepted Answer

The Double-declining-balance method ignores the residual value initially but eventually considers it in the calculation of depreciation. This method calculates depreciation expenses at a higher rate in the earlier years of an asset's life and gradually reduces the charge over time. Eventually, the depreciation expense will decrease to the point where it equals the residual value at the end of the asset's useful life.

Question 7

Lewis Company purchased a machine for $60,000.The machine has an estimated life of 20,000 hours and no salvage value.The entry to record the depreciation charge under the production method assuming that the machine was used for 4,000 hours is:
A)
B)
C)
D)

Accepted Answer

The answer of Lewis Company purchased a machine for $60,000.The...

Question 8

Equipment is purchased for $60,000.It has a five-year useful life and a $10,000 residual value.Under the double-declining-balance method,what is the depreciation expense for year 3?
A)$6,400
B)$7,200
C)$7,680
D)$8,640

Accepted Answer

The answer of Equipment is purchased for $60,000.It has a...

Question 9

Agnes purchased a computer for $2,240.It has an estimated useful life of four years and an estimated residual value of $240.The entry to record the depreciation charge for the first year using the double-declining-balance method is:
A)
B)
C)
D)

Accepted Answer

The double-declining-balance method of depreciation calculates the depreciation expense as a percentage of the asset's book value at the beginning of the year.

The formula for calculating depreciation using the double-declining-balance method is:

2 x straight-line rate x book value at beginning of year

The straight-line rate is calculated as:

1 / estimated useful life

For this problem, the straight-line rate would be:

1 / 4 = 0.25

The book value at the beginning of the year would be:

Cost - Accumulated Depreciation = $2,240 - $0 = $2,240

So, the depreciation expense for the first year using the double-declining-balance method would be:

2 x 0.25 x $2,240 = $1,120

The accumulated depreciation at the end of the first year would be:

$1,120 + $1,120 = $2,240

The entry to record the depreciation charge for the first year would be:

Depreciation Expense  $1,120
  Accumulated Depreciation - Computer  $1,120

Question 10

Which of the following statements is not true about depreciation for tax purposes?
A)The straight-line method is used for most assets.
B)The same methods are not acceptable for financial reporting.
C)Plant assets are written off rapidly.
D)There is a bonus first-year deduction.

Accepted Answer

The straight-line method is not predominantly used for tax purposes; instead, accelerated methods like MACRS (Modified Accelerated Cost Recovery System) are commonly employed to allow for faster depreciation of assets.

Question 11

A building was purchased for $250,000.It has accumulated depreciation of $40,000 and an expected residual value of $50,000.Assuming the use of straight-line depreciation,its estimated useful life must be
A)15 years.
B)10 years.
C)5 years.
D)impossible to determine from the facts given.

Accepted Answer

The answer of A building was purchased for $250,000.It has...

Question 12

On January 1,a machine with a useful life of five years and a residual value of $4,500 is purchased for $22,500.What is the depreciation expense in year 2 using the double-declining-balance method?
A)$5,400
B)$7,200
C)$6,120
D)$13,500

Accepted Answer

The answer of On January 1,a machine with a useful...

Question 13

Accelerated depreciation assumes all of the following except that
A)asset benefit increases with each year of use.
B)the asset provides more benefit in the early years.
C)obsolescence makes an asset less valuable in its later years.
D)repair expense is less in the early years than in the later years.

Accepted Answer

Accelerated depreciation assumes that the asset provides more benefit in the early years, that obsolescence makes it less valuable in its later years, and that repair expense is higher in the later years. It does not assume that the asset benefit increases with each year of use.

Question 14

An asset was purchased for $100,000.It had an estimated residual value of $20,000 and an estimated useful life of ten years.After four years of use,the estimated residual value is revised to $14,000.Assuming straight-line depreciation,depreciation expense in year 5 of use would be
A)$7,667.
B)$8,572.
C)$9,000.
D)$14,334.

Accepted Answer

Total depreciation = Cost - Residual value = $100,000 - $20,000 = $80,000
Depreciation per year = Total depreciation / Useful life in years 
= $80,000 / 10 years = $8,000 per year
After four years, accumulated depreciation would be:
Accumulated depreciation = Depreciation per year x Number of years 
= $8,000 x 4 = $32,000
Book value after four years = Cost - Accumulated depreciation 
= $100,000 - $32,000 = $68,000
Revised depreciable amount = Cost - Revised residual value = $100,000 - $14,000 = $86,000
Remaining useful life = Original useful life - Years already used = 10 years - 4 years = 6 years
Depreciation expense in year 5 = Revised depreciable amount / Remaining useful life 
= $86,000 / 6 = $14,333.33 (rounded to nearest dollar) 
Therefore, the best choice is C.

Question 15

McCloud Company purchased a machine for $15,500.The machine is expected to last four years and has a residual value of $1,500.The entry to record depreciation expense at the end of the first year using the straight-line method is:
A)
B)
C)
D)

Accepted Answer

To calculate straight-line depreciation expense for the first year, we need to subtract the residual value of $1,500 from the purchase price of $15,500 to get a depreciable base of $14,000. Then, we divide this depreciable base by the expected useful life of 4 years to get an annual depreciation expense of $3,500. The journal entry to record depreciation expense would be:
Depreciation Expense $3,500
Accumulated Depreciation $3,500

Question 16

Gomez Company purchases a piece of equipment on Jan.2,2014,for $30,000.The equipment has an estimated life of eight years or 50,000 units of production and an estimated residual value of $3,000.Lester uses a calendar fiscal year.The entry to record the amount of depreciation for 2014.
-Using the production method and assuming 8,000 units are produced,is
A)debit to Depreciation Expense,4,000;credit to Cash,4,000.
B)debit to Cash,4,160;credit to Accumulated Depreciation,4,160.
C)debit to Depreciation Expense,4,320;credit to Accumulated Depreciation,4,320.
D)debit to Depreciation Expense,4,800;credit to Accumulated Depreciation,4,800.

Accepted Answer

The formula to calculate depreciation using the production method is:
Depreciation expense = (cost - residual value) / estimated number of units of production

In this case, the cost is $30,000, the residual value is $3,000, and the estimated number of units of production is 50,000. Therefore, the depreciation expense per unit is:
($30,000 - $3,000) / 50,000 = $0.54 per unit

Since 8,000 units were produced in 2014, the total depreciation expense for the year is:
$0.54 x 8,000 = $4,320

Therefore, the entry to record the amount of depreciation for 2014 is:
Debit Depreciation Expense $4,320
Credit Accumulated Depreciation $4,320

Question 17

A graph depicting yearly depreciation expense under the production method will contain a line that
A)goes horizontally across.
B)goes down as one goes from left to right.
C)cannot be predicted.
D)goes up as one goes from left to right.

Accepted Answer

The answer of A graph depicting yearly depreciation expense under...

Question 18

Equipment costing $60,000 with a residual value of $6,000 and an estimated life of eight years has been depreciated using the straight-line method for two years.Assuming a revised estimated total life of five years,the depreciation expense for year 3 would be
A)$6,750.
B)$9,000.
C)$13,500.
D)$10,800.

Accepted Answer

The depreciable cost of the equipment is $60,000 - $6,000 = $54,000.
Using the straight-line method, the depreciation expense for each year would be $54,000 / 8 = $6,750.
After two years, the accumulated depreciation is $6,750 x 2 = $13,500.
If the estimated total life is revised to five years, the remaining useful life is five years - two years = three years.
To calculate the depreciation expense for year 3, we can use the formula:
Depreciation expense = (depreciable cost - accumulated depreciation) / remaining useful life
Depreciation expense = ($54,000 - $13,500) / 3 = $13,500 / 3 = $4,500
Therefore, the depreciation expense for year 3 would be $4,500 x 1.5 (to reflect the shorter remaining useful life) = $6,750 x 0.5 + $4,500 = $13,500. The answer is C.

Question 19

On January 1,a machine with a useful life of five years and a residual value of $4,500 is purchased for $22,500.What is the depreciation expense in year 3 under straight-line depreciation?
A)$4,500
B)$3,600
C)$10,800
D)$13,500

Accepted Answer

The annual straight-line depreciation can be calculated as follows:
Depreciation = (Purchase Price - Residual Value) / Useful Life
Depreciation = ($22,500 - $4,500) / 5 years
Depreciation = $18,000 / 5 years
Depreciation = $3,600/year

To find the depreciation expense in year 3, we simply multiply the annual depreciation by the number of years:
Depreciation expense in year 3 = $3,600/year x 3 years
Depreciation expense in year 3 = $10,800
Therefore, the best choice is B.

Question 20

Equipment is purchased for $40,000.It has an eight-year useful life and a $21,375 residual value.Under the double-declining-balance method,what is the depreciation expense for year 3?
A)$875
B)$1,125
C)$1,375
D)$5,625

Accepted Answer

The answer of Equipment is purchased for $40,000.It has an...

Quiz 9: Long-Term Assets

Justin,Inc.purchased equipment for $100,000.The equipment had an estimated useful life of eight years and an estimated residual value of $12,000.After five years of use,the estimated residual value is changed to $18,000.Assuming straight-line depreciation,depreciation expense in year 6 would be

Which of the following is irrelevant in computing a machine's depreciation expense using the production method?

When calculating a partial year's depreciation,the length of time an asset has been owned usually is rounded to the nearest month.This rounding practice is justified by the principle or rule of

Which of the following methods ignores residual value initially but eventually considers it in the calculation of depreciation?

Lewis Company purchased a machine for $60,000.The machine has an estimated life of 20,000 hours and no salvage value.The entry to record the depreciation charge under the production method assuming that the machine was used for 4,000 hours is:

Equipment is purchased for $60,000.It has a five-year useful life and a $10,000 residual value.Under the double-declining-balance method,what is the depreciation expense for year 3?

Agnes purchased a computer for $2,240.It has an estimated useful life of four years and an estimated residual value of $240.The entry to record the depreciation charge for the first year using the double-declining-balance method is:

Which of the following statements is not true about depreciation for tax purposes?

A building was purchased for $250,000.It has accumulated depreciation of $40,000 and an expected residual value of $50,000.Assuming the use of straight-line depreciation,its estimated useful life must be

On January 1,a machine with a useful life of five years and a residual value of $4,500 is purchased for $22,500.What is the depreciation expense in year 2 using the double-declining-balance method?

Accelerated depreciation assumes all of the following except that

An asset was purchased for $100,000.It had an estimated residual value of $20,000 and an estimated useful life of ten years.After four years of use,the estimated residual value is revised to $14,000.Assuming straight-line depreciation,depreciation expense in year 5 of use would be

McCloud Company purchased a machine for $15,500.The machine is expected to last four years and has a residual value of $1,500.The entry to record depreciation expense at the end of the first year using the straight-line method is:

A graph depicting yearly depreciation expense under the production method will contain a line that

Equipment costing $60,000 with a residual value of $6,000 and an estimated life of eight years has been depreciated using the straight-line method for two years.Assuming a revised estimated total life of five years,the depreciation expense for year 3 would be

On January 1,a machine with a useful life of five years and a residual value of $4,500 is purchased for $22,500.What is the depreciation expense in year 3 under straight-line depreciation?

Equipment is purchased for $40,000.It has an eight-year useful life and a $21,375 residual value.Under the double-declining-balance method,what is the depreciation expense for year 3?