302 Ch. 11 LO1
For income statement purposes, depreciation is a variable expense if the depreciation method used is a. units-of-production. b. straight-line. c. sum-of-the-years'-digits. d. declining-balance.
A
On January 1, 2011, Forrest Company purchased equipment at a cost of $390,000. The equipment was estimated to have a salvage value of $12,000 and it is being depreciated over eight years under the sum-of-the-years'-digits method. What should be the charge for depreciation of this equipment for the year ended December 31, 2018? a. $10,500 b. $10,833 c. $48,750 d. $47,250
A
On January 1, 2017, the Accumulated Depreciation—Machinery account of a particular company showed a balance of $1,480,000. At the end of 2017, after the adjusting entries were posted, it showed a balance of $1,580,000. During 2017, one of the machines which cost $500,000 was sold for $242,000 cash. This resulted in a loss of $16,000. Assuming that no other assets were disposed of during the year, how much was depreciation expense for 2017? a. $342,000 b. $374,000 c. $100,000 d. $242,000
A
The activity method of depreciation a. is a variable charge approach. b. assumes that depreciation is a function of the passage of time. c. conceptually associates cost in terms of input measures. d. all of these answers are correct.
A
The major difference between the service life of an asset and its physical life is that a. service life refers to the time an asset will be used by a company and physical life refers to how long the asset will last. b. physical life is the life of an asset without consideration of salvage value and service life requires the use of salvage value. c. physical life is always longer than service life. d. service life refers to the length of time an asset is of use to its original owner, while physical life refers to how long the asset will be used by all owners.
A
The term "depreciable base," or "depreciation base," as it is used in accounting, refers to a. the total amount to be charged (debited) to expense over an asset's useful life. b. the cost of the asset less the related depreciation recorded to date. c. the estimated market value of the asset at the end of its useful life. d. the acquisition cost of the asset.
A
A principal objection to the straight-line method of depreciation is that it a. provides for the declining productivity of an aging asset. b. ignores variations in the rate of asset use. c. tends to result in a constant rate of return on a diminishing investment base. d. gives smaller periodic write-offs than decreasing charge methods.
B
Carson Company purchased a depreciable asset for $560,000. The estimated salvage value is $28,000, and the estimated useful life is 10,000 hours. Carson used the asset for 1,500 hours in the current year. The activity method will be used for depreciation. What is the depreciation expense on this asset? a. $53,200 b. $79,800 c. $88,200 d. $532,000
B
Endeavor Company purchased a depreciable asset for $1,200,000. The estimated salvage value is $60,000, and the estimated useful life is 10,000 hours. Endeavor used the asset for 1,100 hours in the current year. The activity method will be used for depreciation. What is the depreciation expense on this asset? a. $114,000 b. $125,400 c. $132,000 d. $1,140,000
B
Grover Corporation purchased a truck at the beginning of 2017 for $109,200. The truck is estimated to have a salvage value of $4,200 and a useful life of 120,000 miles. It was driven 21,000 miles in 2017 and 29,000 miles in 2018. What is the depreciation expense for 2017? a. $19,845 b. $18,375 c. $25,375 d. $43,750
B
Klayton Corporation purchased factory equipment that was installed and put into service January 2, 2017, at a total cost of $150,000. Salvage value was estimated at $10,000. The equipment is being depreciated over four years using the double-declining balance method. For the year 2018, Klayton should record depreciation expense on this equipment of a. $35,000. b. $37,500. c. $70,000. d. $75,000.
B
On January 1, 2017, Garden Company purchased a new machine for $4,200,000. The new machine has an estimated useful life of nine years and the salvage value was estimated to be $150,000. Depreciation was computed using the sum-of-the-years'-digits method. What amount should be shown in Garden's balance sheet at December 31, 2018, net of accumulated depreciation, for this machine? a. $3,390,000 b. $2,670,000 c. $2,613,331 d. $2,488,500
B
On January 2, 2015, Wang Company acquired equipment to be used in its manufacturing operations. The equipment has an estimated useful life of 10 years and an estimated salvage value of $45,000. The depreciation applicable to this equipment was $210,000 for 2018, computed under the sum-of-the-years'-digits method. What was the acquisition cost of the equipment? a. $1,605,000 b. $1,695,000 c. $1,650,000 d. $1,625,000
B
On July 1, 2017, Mendes Corporation purchased factory equipment for $300,000. Salvage value was estimated to be $8,000. The equipment will be depreciated over five years using the double-declining balance method. Counting the year of acquisition as one-half year, Mendes should record depreciation expense for 2018 on this equipment of a. $120,000. b. $96,000. c. $93,440. d. $72,000.
B
On July 1, 2017, Nowton Co. purchased machinery for $240,000. Salvage value was estimated to be $10,000. The machinery will be depreciated over ten years using the double-declining balance method. If depreciation is computed on the basis of the nearest full month, Nowton should record depreciation expense for 2018 on this machinery of a. $41,400. b. $43,200. c. $43,700. d. $38,400.
B
Ramos Co. purchased machinery that was installed and ready for use on January 3, 2017, at a total cost of $230,000. Salvage value was estimated at $30,000. The machinery will be depreciated over five years using the double-declining balance method. For the year 2018, Ramos should record depreciation expense on this machinery of a. $48,000. b. $55,200. c. $60,000. d. $92,000.
B
Slotkin Products purchased a machine for $65,000 on July 1, 2017. The company intends to depreciate it over 8 years using the double-declining balance method. Salvage value is $5,000. Depreciation for 2017 is a. $32,500 b. $8,125 c. $14,219 d. $15,000
B
Which of the following most accurately reflects the concept of depreciation as used in accounting? a. The process of charging the decline in value of an economic resource to income in the period in which the benefit occurred. b. The process of allocating the cost of tangible assets to expense in a systematic and rational manner to those periods expected to benefit from the use of the asset. c. A method of allocating asset cost to an expense account in a manner which closely matches the physical deterioration of the tangible asset involved. d. An accounting concept that allocates the portion of an asset used up during the year to the contra asset account for the purpose of properly recording the fair market value of tangible assets.
B
Which of the following principles best describes the conceptual rationale for the methods of matching depreciation expense with revenues? a. Associating cause and effect b. Systematic and rational allocation c. Immediate recognition d. Partial recognition
B
A graph is set up with "yearly depreciation expense" on the vertical axis and "time" on the horizontal axis. Assuming linear relationships, how would the graphs for straight-line and sum-of-the-years'-digits depreciation, respectively, be drawn? a. Vertically and sloping down to the right b. Vertically and sloping up to the right c. Horizontally and sloping down to the right d. Horizontally and sloping up to the right
C
A plant asset has a cost of $40,000 and a salvage value of $10,000. The asset has a three-year life. If depreciation in the third year amounted to $5,000, which depreciation method was used? a. Straight-line b. Declining-balance c. Sum-of-the-years'-digits d. Cannot tell from information given
C
During 2017, Node Co. sold equipment that had cost $392,000 for $235,200. This resulted in a gain of $17,200. The balance in Accumulated Depreciation—Equipment was $1,300,000 on January 1, 2017, and $1,240,000 on December 31. No other equipment was disposed of during 2017. Depreciation expense for 2017 was a. $60,000. b. $77,200. c. $114,000. d. $234,000.
C
Each of the following are physical factors affecting depreciation except a. casualties. b. decay. c. obsolescence. d. wear and tear.
C
Falcon Company purchased a depreciable asset for $175,000. The estimated salvage value is $14,000, and the estimated useful life is 10 years. The straight-line method will be used for depreciation. What is the depreciation base of this asset? a. $16,100 b. $17,500 c. $161,000 d. $175,000
C
Grover Corporation purchased a truck at the beginning of 2017 for $109,200. The truck is estimated to have a salvage value of $4,200 and a useful life of 120,000 miles. It was driven 21,000 miles in 2017 and 29,000 miles in 2018. What is the depreciation expense for 2018? a. $27,405 b. $7,000 c. $25,375 d. $43,750
C
Halltown Company purchased a depreciable asset for $600,000. The estimated salvage value is $40,000, and the estimated useful life is 8 years. The double-declining balance method will be used for depreciation. What is the depreciation expense for the second year on this asset? a. $70,000 b. $105,000 c. $112,500 d. $150,000
C
Henry Company purchased a depreciable asset for $360,000. The estimated salvage value is $33,000, and the estimated useful life is 10 years. The straight-line method will be used for depreciation. What is the depreciation base of this asset? a. $33,000 b. $36,000 c. $327,000 d. $360,000
C
Jasmine Company purchased a depreciable asset for $375,000. The estimated salvage value is $25,000, and the estimated useful life is 8 years. The double-declining balance method will be used for depreciation. What is the depreciation expense for the second year on this asset? a. $43,750 b. $65,625 c. $70,313 d. $93,750
C
On January 3, 2016, Salazar Co. purchased machinery. The machinery has an estimated useful life of eight years and an estimated salvage value of $120,000. The depreciation applicable to this machinery was $260,000 for 2018, computed by the sum-of-the-years'-digits method. The acquisition cost of the machinery was a. $1,440,000. b. $1,560,000. c. $1,680,000. d. $1,872,000.
C
On September 19, 2017, Markham Co. purchased machinery for $475,000. Salvage value was estimated to be $25,000. The machinery will be depreciated over eight years using the sum-of-the-years'-digits method. If depreciation is computed on the basis of the nearest full month, Markham should record depreciation expense for 2018 on this machinery of a. $102,257. b. $97,111. c. $96,875. d. $87,500.
C
Orton Corporation, which has a calendar year accounting period, purchased a new machine for $80,000 on April 1, 2013. At that time Orton expected to use the machine for nine years and then sell it for $8,000. The machine was sold for $44,000 on Sept. 30, 2018. Assuming straight-line depreciation, no depreciation in the year of acquisition, and a full year of depreciation in the year of retirement, the gain to be recognized at the time of sale would be a. $8,000. b. $6,000. c. $4,000. d. $0.
C
Slotkin Products purchased a machine for $65,000 on July 1, 2017. The company intends to depreciate it over 8 years using the double-declining balance method. Salvage value is $5,000. Depreciation for 2018 to the closest dollar is a. $32,500 b. $8,125 c. $14,219 d. $12,500
C
Use of the sum-of-the-years'-digits method a. results in salvage value being ignored. b. means the denominator is the years remaining at the beginning of the year. c. means the book value should not be reduced below salvage value. d. all of these answers are correct.
C
Economic factors that shorten the service life of an asset include a. obsolescence. b. supersession. c. inadequacy. d. all of these answers are correct.
D
If an industrial firm uses the units-of-production method for computing depreciation on its only plant asset, factory machinery, the credit to accumulated depreciation from period to period during the life of the firm will a. be constant. b. vary with unit sales. c. vary with sales revenue. d. vary with production.
D
Use of the double-declining balance method a. results in a decreasing charge to depreciation expense. b. means salvage value is not deducted in computing the depreciation base. c. means the book value should not be reduced below salvage value. d. all of these answers are correct.
D
Which of the following is a realistic assumption of the straight-line method of depreciation? a. The asset's economic usefulness is the same each year. b. The repair and maintenance expense is essentially the same each period. c. The rate of return analysis is enhanced using the straight-line method. d. Depreciation is a function of time rather than a function of usage.
D
Which of the following is not one of the basic questions that must be answered before the amount of depreciation charge can be computed? a. What is the depreciation base to use for the asset? b. What is the asset's useful life? c. What method of cost apportionment is best for this asset? d. What product or service is the asset related to?
D
Which of the following is true of depreciation accounting? a. It is not a matter of valuation. b. It is part of the matching of revenues and expenses. c. It is the process of cost allocation. d. All of these answers are correct.
D
An accelerated depreciation method is appropriate when the asset's economic usefulness is the same each year.
F
Depreciation is based on the decline in the fair market value of the asset.
F
Inadequacy is the replacement of one asset with another more efficient and economical asset.
F
The three factors involved in the depreciation process are the depreciation base, the useful life, and the risk of obsolescence.
F
The units-of-production approach to depreciation is appropriate when depreciation is a function of time instead of activity.
F
Depreciation is a means of cost allocation, not a matter of valuation.
T
Depreciation, depletion, and amortization all involve the allocation of the cost of a long-lived asset to expense.
T
The cost of an asset less its salvage value is its depreciation base.
T
The declining-balance method does not deduct the salvage value in computing the depreciation base.
T
The major objection to the straight-line method is that it assumes the asset's economic usefulness and maintenance repair expense are the same each year.
T
