Chapter 10 E4

Hart Corporation owns machinery with a book value of $570,000. At fiscal year-end 2026, is estimated that the machinery will generate future cash flows of $600,000. If the machinery has a fair value of $420,000 at that time, Hart should recognize a loss on impairment of a. $ 0. b. $30,000. c. $150,000. d. $180,000.

a. $ 0.

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. the total amount to be charged (debited) to expense over an asset's useful life.

Grover Corporation purchased a truck at the beginning of 2025 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 2025 and 29,000 miles in 2026. Depreciation expense for 2025 is a. $19,845. b. $18,375. c. $25,375. d. $43,750.

b. $18,375.

On January 1, 2025, 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 reported on Garden's balance sheet at December 31, 2026, net of accumulated depreciation, for this machine? a. $3,390,000 b. $2,670,000 c. $2,613,331 d. $2,488,500

b. $2,670,000

On January 1, 2020, Franklin Company purchased equipment for $320,000. The equipment is estimated to have a salvage value of $20,000 and is being depreciated over five years using the sum-of-the-years'-digits method. What is depreciation expense on the equipment for the year ended December 31, 2023? a. $42,667 b. $40,000 c. $85,333 d. $80,000

b. $40,000

On May 1, Frontenac Company purchased factory equipment for $760,000. The asset's useful life in hours is estimated to be 200,000. The estimated salvage value is $40,000 and the estimated useful life in years is 9. The machine was used for 21,000 hours in the first year. If the straight-line method will be used, what is depreciation expense for the first year of the asset's life? a. $80,000 b. $53,333 c. $56,296 d. $75,600

b. $53,333

Slotkin Products purchased a machine for $65,000 on July 1, 2025. The company intends to depreciate it over 8 years using the double-declining balance method. The salvage value is $5,000. Depreciation expense for 2025 is a. $32,500. b. $8,125. c. $14,219. d. $15,000.

b. $8,125.

Lamar Printing Company determines that a printing press used in its operations has suffered a permanent impairment in value because of technological changes. An entry to record the impairment should a. recognize an unusual loss for the period. b. include a credit to the equipment accumulated depreciation account. c. include a credit to the equipment account. d. not be made if the equipment is still being used.

b. include a credit to the equipment accumulated depreciation account.

The book value of a plant asset is a. the fair market value of the asset at a balance sheet date. b. the asset's acquisition cost less the total related depreciation recorded to date. c. equal to the balance of the related accumulated depreciation account. d. the assessed value of the asset for property tax purposes

b. the asset's acquisition cost less the total related depreciation recorded to date.

The recoverability test compares a. the cost of the asset to its carrying value. b. the carrying value of the asset to its undiscounted expected future net cash flows. c. the carrying value of the asset to its discounted expected future net cash flows. d. the fair value of the asset to its carrying value.

b. the carrying value of the asset to its undiscounted expected future net cash flows.

Slotkin Products purchased a machine for $65,000 on July 1, 2025. The company intends to depreciate it over 8 years using the double-declining balance method. The salvage value is $5,000. Depreciation for 2026 to the closest dollar is a. $32,500. b. $8,125. c. $14,219. d. $12,500.

c. $14,219.

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 asset's depreciation base? a. $16,100 b. $17,500 c. $161,000 d. $175,000

c. $161,000

Morgan Corporation purchased a depreciable asset for $600,000 on January 1, 2023. The estimated salvage value is $60,000, and the estimated useful life is 9 years. The straight-line method is used for depreciation. In 2026, Morgan changed its estimates to a total useful life of 5 years with a salvage value of $90,000. What is 2026 depreciation expense? a. $60,000 b. $90,000 c. $165,000 d. $180,000

c. $165,000

Grover Corporation purchased a truck at the beginning of 2025 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 2025 and 29,000 miles in 2026. Depreciation expense for 2026 is a. $27,405. b. $7,000. c. $25,375. d. $43,750.

c. $25,375.

Porter Resources Company acquired a tract of land containing an extractable natural resource. Porter is required by its purchase contract to restore the land to a condition suitable for recreational use after it has extracted the natural resource. Geological surveys estimate that the recoverable reserves will be 2,500,000 tons and that the land will have a value of $1,000,000 after restoration. Relevant cost information follows: Land $7,500,000 Estimated restoration costs 1,500,000 If Porter maintains no inventories of extracted material, what should be the charge to depletion expense per ton of extracted material? a. $2.60 b. $3.00 c. $3.20 d. $3.60

c. $3.20

McDonald Company acquired machinery on January 1, 2020 which it depreciated under the straight-line method with an estimated life of fifteen years and no salvage value. On January 1, 2025, McDonald estimated that the remaining life of this machinery was six years with no salvage value. How should this change be accounted for by McDonald? a. as a prior period adjustment b. as the cumulative effect of a change in accounting principle in 2025 c. by setting future annual depreciation equal to one-sixth of the book value on January 1, 2025 d. by continuing to depreciate the machinery over the original fifteen-year life

c. by setting future annual depreciation equal to one-sixth of the book value on January 1, 2025

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 the choices are correct.

c. means the book value should not be reduced below salvage value.

Regis Inc. bought a machine on January 1, 2016 for $800,000. The machine had an expected life of 20 years and was expected to have a salvage value of $80,000. On July 1, 2026, the company reviewed the potential of the machine and determined that its future net cash flows totaled $400,000 and its fair value was $280,000. If the company does not plan to dispose of the machine, what should Regis record as an impairment loss on July 1, 2026? a. $ 0 b. $22,000 c. $40,000 d. $142,000

d. $142,000

Use of the double-declining balance method a. results in a decreasing charge to depreciation expense each year. b. requires that salvage value is not deducted in computing the depreciation base. c. requires that the book value not be reduced below salvage value. d. All of the choices are correct.

d. All of the choices are correct.

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 the choices are correct.

d. All of the choices are correct.

Usually, companies compute depletion for accounting purposes using a. the percentage depletion method. b. a decreasing charge method. c. the straight-line method. d. the units-of-production method.

d. the units-of-production method.