Question 1

GAAP requires the general description of the methods used in the computation of depreciation regarding major classes of assets to be disclosed in the notes of the financial statements.

Accepted Answer

A) True 
 B)False

Question 2

Property, plant, and equipment must be reviewed for impairment when which one of the following events occurs?

Accepted Answer

A)  A significant change in the asset's estimated useful life occurs. 
B)  The costs of constructing the asset are determined to be less than the budgeted amount. 
C)  A current period operating loss occurs. 
D)  Investing activities produce a negative cash flow.

Question 3

Under the MACRS principles, the tax life of an asset is usually shorter than the asset's economic life.

Accepted Answer

A) True 
 B)False

Question 4

A company purchased ten delivery vehicles at a cost of $20,000 each and used the group depreciation method. Which of the following entries would be correct when recording the subsequent sale of a vehicle for $8,500 group accumulated depreciation is $88,000)?

Accepted Answer

The answer of A company purchased ten delivery vehicles at...

Question 5

Making intercompany comparisons is equally as important to insiders as to outsiders. What two measures can provide investors and analysts with information regarding a company's property, plant, and equipment?

Accepted Answer

The answer of Making intercompany comparisons is equally as important...

Question 6

The Sahara Company purchased equipment on January 1, 2015, for $100,000. The equipment had an estimated residual value of $10,000, an estimated useful life of five years, and estimated lifetime output of 18,000 units. In 2016, the company produced 4,400 units and recorded depreciation expense of $22,000. What depreciation method did the company use?

Accepted Answer

A)  straight-line method 
B)  sum-of-the-years'-digits method 
C)  double-declining-balance method 
D)  units-of-output method

Question 7

The use of accelerated methods is appropriate when the asset will be used more in the later periods versus earlier periods.

Accepted Answer

A) True 
 B)False

Question 8

The depreciation base is computed as follows:
Estimated Residual Value = Depreciation Base - Asset Cost

Accepted Answer

A) True 
 B)False

Question 9

The MACRS Depreciation table is as follows:
MACRS Depreciation as a Percentage of the Cost of the Asset  Required:
Using the MACRS Depreciation table calculate each year of depreciation for each independent situation.

Accepted Answer

The answer of The MACRS Depreciation table is as follows:
MACRS...

Question 10

Assets from time to time become impaired. GAAP requires companies to review their assets for impairment. This review should take place whenever events or circumstances indicate the carrying value of the asset may not be recoverable. Provide three examples of events or circumstances which may cause a company to review their assets for impairment.

Accepted Answer

The answer of Assets from time to time become impaired....

Question 11

Which one of the following is not a factor that limits the service life of an asset?

Accepted Answer

A)  operational use 
B)  replacement value 
C)  deterioration as a function of time 
D)  obsolescence

Question 12

When conducting an impairment test, a company must estimate

Accepted Answer

A)  future cash inflows from its use of the asset and eventual sale. 
B)  future net cash flows from its use of the asset and eventual sale. 
C)  total net flows from its use of the asset and eventual sale. 
D)  total cash from its use of the asset and eventual sale.

Question 13

List the time based methods of cost allocation, provide a brief explanation of each.

Accepted Answer

The answer of List the time based methods of cost...

Question 14

GAAP allows companies to choose between time-based, activity, group, or composite cost allocation methods, but once the method is chosen it must be applied consistently over time. This ensures that financial information is comparable.

Accepted Answer

A) True 
 B)False

Question 15

On April 20, 2016, Maskell Co. purchased an asset costing $66,000 with a useful life of nine years and a residual value of $6,000. The company uses sum-of-the-years'-digits depreciation.
Required:
Compute depreciation expense for 2016 using the
a. nearest whole month method
b. nearest whole year method
c. half-year convention method

Accepted Answer

The answer of On April 20, 2016, Maskell Co. purchased...

Question 16

The factors involved in computing periodic depreciation charges for an asset do not include the

Accepted Answer

A)  method of cost allocation 
B)  current value of the asset 
C)  service life 
D)  residual value of the asset

Question 17

It has been suggested that repair and maintenance costs should be considered when selecting a depreciation method.
Required:
Discuss the reasoning behind this assertion and explain how it would be implemented.

Accepted Answer

The answer of It has been suggested that repair and...

Question 18

Composite depreciation is applied to homogeneous assets which have similar service lives and residual values.

Accepted Answer

A) True 
 B)False

Question 19

On January 1, 2016, Digger purchased some equipment for $29,600. The anticipated life of the equipment was five years and residual value was estimated to be $4,100. The machine was expected to produce 600,000 units. In January of 2016, 35,000 units were produced and production was doubled in February. The company uses the activity depreciation method. What is the amount of depreciation expense for the month of February?

Accepted Answer

A)  $ 637.50 
B)  $1,487.50 
C)  $3,453.33 
D)  $2,975.00

Question 20

Which one of the following statements is not true regarding depreciation?

Accepted Answer

A)  It is a systematic, rational method of allocating the cost of an asset over its useful life. 
B)  It attempts to match the costs of acquiring an asset to the benefits to be derived from the asset. 
C)  It does not attempt to measure the value of the asset. 
D)  It provides funds for the replacement of the asset through tax savings over the asset's life.

Exam 11: Depreciation, Depletion, Impairment, and Disposal

GAAP requires the general description of the methods used in the computation of depreciation regarding major classes of assets to be disclosed in the notes of the financial statements.

Property, plant, and equipment must be reviewed for impairment when which one of the following events occurs?

Under the MACRS principles, the tax life of an asset is usually shorter than the asset's economic life.

A company purchased ten delivery vehicles at a cost of $20,000 each and used the group depreciation method. Which of the following entries would be correct when recording the subsequent sale of a vehicle for $8,500 group accumulated depreciation is $88,000)?

Making intercompany comparisons is equally as important to insiders as to outsiders. What two measures can provide investors and analysts with information regarding a company's property, plant, and equipment?

The use of accelerated methods is appropriate when the asset will be used more in the later periods versus earlier periods.

The depreciation base is computed as follows: Estimated Residual Value = Depreciation Base - Asset Cost

The MACRS Depreciation table is as follows: MACRS Depreciation as a Percentage of the Cost of the Asset Required: Using the MACRS Depreciation table calculate each year of depreciation for each independent situation.

Which one of the following is not a factor that limits the service life of an asset?

When conducting an impairment test, a company must estimate

List the time based methods of cost allocation, provide a brief explanation of each.

GAAP allows companies to choose between time-based, activity, group, or composite cost allocation methods, but once the method is chosen it must be applied consistently over time. This ensures that financial information is comparable.

The factors involved in computing periodic depreciation charges for an asset do not include the

It has been suggested that repair and maintenance costs should be considered when selecting a depreciation method. Required: Discuss the reasoning behind this assertion and explain how it would be implemented.

Composite depreciation is applied to homogeneous assets which have similar service lives and residual values.

Which one of the following statements is not true regarding depreciation?