Question 1

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 states that an item should be recorded in the financial statements if it is material and that rounding to the nearest month for partial year depreciation is an acceptable practice because the impact on the financial statements is immaterial.

Question 2

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 3

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 4

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

Depreciation expense = (Cost - Residual value) / Useful life= (100,000 - 18,000) / 8= 102,000 / 8= 12,750Depreciation expense in year 6 = 12,750 - 2,500 = $9,000

Question 5

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 x 2 years) has been depreciated. The overhaul costs $8,000, increasing the asset's total cost to $56,000 ($48,000 + $8,000). However, $16,000 has already been depreciated, leaving $40,000 ($56,000 - $16,000) to be depreciated over the remaining 8 years (4 original + 4 additional), resulting in an annual depreciation of $5,000 ($40,000 / 8 years).

Question 6

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

Under straight-line depreciation, the total depreciation expense over the useful life of the asset is calculated by subtracting the residual value from the original cost and then dividing by the useful life.

Total depreciation = (Purchase price - Residual value) / Useful life

Total depreciation = ($22,500 - $4,500) / 5 = $3,600 per year

To find the depreciation expense in year 3, we simply multiply the annual depreciation expense by the number of years that have passed.

Depreciation expense in year 3 = $3,600 x 3 = $10,800

Therefore, the correct answer is B, $3,600.

Question 7

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 and that obsolescence makes the asset less valuable in its later years. It also assumes that repair expenses are higher in the later years than in the early years. However, it does not assume that the asset benefit increases with each year of use.

Question 8

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

To calculate depreciation expense for year 3, we first need to determine the remaining depreciable amount of the equipment. 
Original cost = $60,000
Residual value = $6,000
Depreciable amount = $60,000 - $6,000 = $54,000

The equipment has been depreciated for 2 years using the straight-line method, so the accumulated depreciation is:
Depreciation per year = Depreciable amount / Estimated life = $54,000 / 8 = $6,750
Accumulated depreciation = Depreciation per year x Years depreciated = $6,750 x 2 = $13,500

If we revise the estimated total life to 5 years, then the remaining depreciable amount would be:
Remaining life = Estimated life - Years depreciated = 5 - 2 = 3
Remaining depreciable amount = Depreciable amount - Accumulated depreciation = $54,000 - $13,500 = $40,500

The depreciation expense for year 3 can now be calculated using the straight-line method:
Depreciation per year = Remaining depreciable amount / Remaining life = $40,500 / 3 = $13,500

Therefore, the answer is C) $13,500.

Question 9

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 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

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 12

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 13

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 of depreciation does not initially consider the residual value in calculating the annual depreciation expense. However, it effectively considers the residual value towards the end of the asset's useful life because depreciation expense is reduced in the final years to ensure the asset's book value does not fall below its residual value.

Question 14

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

Using the production method, depreciation is calculated by dividing the depreciable cost (cost - residual value) by the total units of production expected over the life of the equipment.

The depreciable cost is $27,000 ($30,000 - $3,000). The total units of production expected over the life of the equipment is 50,000 units. Therefore, the depreciation per unit of production is $0.54 ($27,000 ÷ 50,000).

For 2014, 8,000 units were produced. Therefore, the depreciation expense for 2014 is $4,320 ($0.54 × 8,000). This amount should be debited to Depreciation Expense and credited to Accumulated Depreciation. Thus, option C is the correct answer.

Question 15

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...

Question 16

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 17

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 18

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

The correct answer is A because the depreciation expense for year 5 would be $2,667. This is calculated by taking the cost of the van ($30,000) minus the residual value ($6,000) and dividing by the revised estimated useful life (7 years). This gives us an annual depreciation expense of $3,429. To find the depreciation expense for year 5, we multiply the annual depreciation expense by the number of years of use (5 years). This gives us a depreciation expense of $2,667.

Question 19

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 20

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

The answer of An asset was purchased for $100,000.It had...

Quiz 10: Long -Term Assets

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

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

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

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?

Accelerated depreciation assumes all of the following except 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

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

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

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:

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

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?

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:

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