Question 1

The purpose of depreciation is to systematically and rationally depreciate the cost over the life of the asset to ensure appropriate capital for future replacement.

Accepted Answer

A) True 
 B)False

Question 2

The Chuck Company purchased a truck on January 1, 2014. The truck cost $106,000 and was expected to have a residual value of $14,000 at the end of 2018. Chuck uses the 150%-declining-balance depreciation method. What amount of depreciation should Chuck record on the truck in 2014?

Accepted Answer

A)  $18,400 
B)  $31,800 
C)  $27,600 
D)  $21,200

Question 3

Exhibit 11-2 Browning purchased a business copier for $4,500 on August 3, 2014. It has an estimated residual value of $500 and an expected service life of five years. Browning uses double-declining-balance depreciation computed to the nearest whole month.
-Refer to Exhibit 11-2. The accumulated depreciation balance at December 31, 2015, should be

Accepted Answer

A)  $1,750 
B)  $2,000 
C)  $2,250 
D)  $2,340

Question 4

Making intercompany comparisions is equally as important to insiders as well as outsiders. What two measures can provide investors and analysts with information regarding a companies property, plant, and equipment?

Accepted Answer

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

Question 5

How can service life be measured?

Accepted Answer

A)  units of time 
B)  units of activity 
C)  units of output 
D)  all of the above can measure service life

Question 6

On January 1, 2014, Paradise Hotels and Spa's purchased a machine. Residual value was estimated to be $13,000 after a 15-year life. Using sum-of-the-years'-digits depreciation, the company recorded $8,500 depreciation expense in 2016.
Required:
Compute the cost of the machine.

Accepted Answer

The answer of On January 1, 2014, Paradise Hotels and...

Question 7

Which one of the following statements is true?

Accepted Answer

A)  The activity method of computing depreciation could result in zero depreciation expense in some periods of time. 
B)  If the activity method is in use, residual value should not be subtracted from cost to determine the depreciation base. 
C)  The activity method produces a constant total cost of depreciation each period. 
D)  The activity method should be used when the service life of the asset is affected mostly by the passage of time.

Question 8

Which one of the following statements is not a disclosure requirement for depreciation?

Accepted Answer

A)  the balance of major classes of depreciable assets 
B)  a general description of the method(s) used for depreciation 
C)  the accumulated depreciation for each major class of depreciable asset 
D)  the useful lives for each major class of depreciable asset

Question 9

Hill has a fiscal year-end of December 31. Hill purchased a piece of equipment for $12,000 in February with a four-year useful life and a zero residual value. Hill used the equipment to produce finished goods in March that were sold on credit in April with cash collected in May. Hill uses straight-line depreciation. The amount of depreciation expense affecting the reported income on the first quarter income statement was

Accepted Answer

A)  $250 
B)  $ 0 
C)  $500 
D)  $700

Question 10

On January 1, 2014, Mullhausen Co. began using the composite depreciation method. There were three machines to consider, as follows: 
 
At the end of the second year, Machine B was sold for $8,200. In the entry to record the sale, there should be a

Accepted Answer

A)  $1,200 debit to Gain on Sale of Machine 
B)  $6,800 debit to Accumulated Depreciation 
C)  $6,800 debit to Loss on Sale of Machine 
D)  $8,000 debit to Accumulated Depreciation

Question 11

When deciding on a depreciation method repair and maintenance costs associated with the asset should be a considering factor to ensure that the total costs are reported accurately in the financial statements.

Accepted Answer

A) True 
 B)False

Question 12

Which depreciation method calculates annual depreciation expense based on the book value of an asset?

Accepted Answer

A)  double-declining-balance method 
B)  sum-of-the-years'-digits method 
C)  inventory systems method 
D)  group method

Question 13

On January 1, 2014, Danville Corporation acquired a machine at a cost of $60,000. The machine's service life was estimated to be ten years and its residual value to be $6,000. The straight-line method was used for depreciation. On January 1, 2019, the machine was no longer useful and was sold for $3,000. For 2019, in regard to this machine, how much of a loss should Danville record?

Accepted Answer

A)  $27,000 
B)  $30,000 
C)  $3,000 
D)  $60,000

Question 14

On July 1, 2014, American Stereo purchased stereo equipment for $5,000. The estimated life of the equipment was ten years and the residual value was estimated to be $2,000. Double-declining-balance depreciation was used. If calculations are based on the nearest whole month, depreciation expense for the year 2016 was

Accepted Answer

A)  $720 
B)  $900 
C)  $640 
D)  $800

Question 15

Peanut Company purchased a machine on January 1, 2014, for $100,000 with a $20,000 salvage value and a eight-year useful life. The company uses double-declining-balance depreciation.
Required:
Compute the depreciation expense (to the nearest whole dollar) for 2014 and 2015.

Accepted Answer

The answer of Peanut Company purchased a machine on January...

Question 16

On April 20, 2014, 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 2014 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, 2014, Maskell Co. purchased...

Question 17

Lucas, Inc. purchased ten air conditioning units for $5,000 each, with an average expected service life of eight years and a residual value of $700 each. The depreciation rate for the assets, assuming the group depreciation method is used, will be

Accepted Answer

A)  10% 
B)  10.75% 
C)  12.5% 
D)  14.5%

Question 18

Redeau Company has been depreciating certain assets using the straight-line method. At the beginning of the current year, the company changed to the sum-of-the-years'-digits method to depreciate these assets. Which of the following statements regarding this change is true?

Accepted Answer

A)  The change should be accounted for prospectively. 
B)  The change should be accounted for with an adjustment of the accumulated depreciation and the retained earnings balances. 
C)  The change should be accounted for by including the cumulative effect of the change in the current year's income statement. 
D)  The accounting impact of the change is limited to the difference in current-year depreciation on the affected assets.

Question 19

If a company purchases an asset within the last 6 months of the year, it is considered owned for the entire year based upon the nearest whole year convention.

Accepted Answer

A) True 
 B)False

Question 20

Which one of the following statements is true?

Accepted Answer

A)  One objective of depreciating an asset is to provide funds for replacement. 
B)  GAAP requires the use of either straight-line or declining-balance depreciation. 
C)  Straight-line depreciation results in a decreasing rate of return on total assets. 
D)  Typically, the sum-of-the-years'-digits method will result in less depreciation expense in the year of acquisition than will the double-declining-balance method.

Exam 11: Depreciation, Depletion, Impairment, and Disposal

The purpose of depreciation is to systematically and rationally depreciate the cost over the life of the asset to ensure appropriate capital for future replacement.

The Chuck Company purchased a truck on January 1, 2014. The truck cost $106,000 and was expected to have a residual value of $14,000 at the end of 2018. Chuck uses the 150%-declining-balance depreciation method. What amount of depreciation should Chuck record on the truck in 2014?

Making intercompany comparisions is equally as important to insiders as well as outsiders. What two measures can provide investors and analysts with information regarding a companies property, plant, and equipment?

How can service life be measured?

On January 1, 2014, Paradise Hotels and Spa's purchased a machine. Residual value was estimated to be $13,000 after a 15-year life. Using sum-of-the-years'-digits depreciation, the company recorded $8,500 depreciation expense in 2016. Required: Compute the cost of the machine.

Which one of the following statements is true?

Which one of the following statements is not a disclosure requirement for depreciation?

On January 1, 2014, Mullhausen Co. began using the composite depreciation method. There were three machines to consider, as follows: At the end of the second year, Machine B was sold for $8,200. In the entry to record the sale, there should be a

When deciding on a depreciation method repair and maintenance costs associated with the asset should be a considering factor to ensure that the total costs are reported accurately in the financial statements.

Which depreciation method calculates annual depreciation expense based on the book value of an asset?

Peanut Company purchased a machine on January 1, 2014, for $100,000 with a $20,000 salvage value and a eight-year useful life. The company uses double-declining-balance depreciation. Required: Compute the depreciation expense (to the nearest whole dollar) for 2014 and 2015.

Lucas, Inc. purchased ten air conditioning units for $5,000 each, with an average expected service life of eight years and a residual value of $700 each. The depreciation rate for the assets, assuming the group depreciation method is used, will be

Redeau Company has been depreciating certain assets using the straight-line method. At the beginning of the current year, the company changed to the sum-of-the-years'-digits method to depreciate these assets. Which of the following statements regarding this change is true?

If a company purchases an asset within the last 6 months of the year, it is considered owned for the entire year based upon the nearest whole year convention.

Which one of the following statements is true?