MGMT 201 Chapter 8 Quiz

Concord Company purchased a bottling machine on October 1, 2022, for $257200. The estimated useful life is 25 years, and they are using straight-line depreciation. On October 1, 2023, it spent $41500 on the machine to double its capacity and $5200 on routine cleaning. The company's year end is September 30. What should the depreciation expense be at September 30, 2024?

$12017 Depre Per Year = (257200-0)/25=10288 Book Value on OCT 1, 2023= 257200-10288=246912 New cost of machine = 246912+41500=288412 New Depre Per Year = (288412-0)/(25-1)=12017

On July 1, 2023, Oriole Co. purchased some equipment that initially cost $52600. Additional costs included freight costs $200, non-refundable taxes $7000, and installation $600. Estimated residual value is $2400. The company uses a straight-line rate of 10%. Oriole's fiscal year end is June 30. What would the depreciation expense be for 2024 if Oriole Co. used the double-declining-balance method?

$12080 =(52600+200+7000+600)x10%x(1x2)

On July 1, 2023, Culver Co. purchased some equipment that initially cost $51700. Additional costs included freight costs $300, non-refundable taxes $5900, and installation $700. Estimated residual value is $2100. The company uses a straight-line rate of 10%. Culver's fiscal year end is June 30. Accumulated depreciation at the fiscal year end of 2026 is

$16950. Accumulated Depre= (all costs - residual value) x Depr Rate / years of depr =(51700+300+5900+700-2100)x10%x3

Bramble Co. purchased a machine on January 1, 2024, for $21000. The machine had an estimated useful life of 10 years and an estimated residual value of $2000. If Bramble Co. used the straight-line method of depreciation, what would the carrying value of the machine be at the end of 2024?

$19100 =21000-((21000-2000)/10)

Sheridan Farms purchased some equipment on January 1, 2024, for $11700. The equipment has an estimated useful life of 10 years and an estimated residual value of $1300. The company uses double-declining-balance depreciation. Depreciation expense for 2024 would be

$2340. =11700*(2/10)

A depreciable asset with a cost of $38650 has a residual value of $1900 and a useful life of 7 years. Total estimated units of output are 75000 and in year 1 a total of 5000 units were produced. Under the straight-line method and the units-of-activity method the depreciation expense for the first year would be Straight-line Units-of-activity

$5250.00 $2450.00 Straight line method: Depreciation = (38650-1900)/7 Depreciation = $5250 Units of Activity method: Depreciation per unit = (38650-1900)/75000 Depreciation per unit = 0.49 Depreciation in the first year = 5000 units*$0.49 Depreciation in first year = $2450

Sunland Inc. bought new computers on January 1 for $34000 to improve the quality of its animation products. The computers have a useful life of 8 years but Sunland Inc. thinks that continuing technological developments will likely mean it will replace the computers after 4 years, at which time the computers will be worth $2600. If Sunland uses straight-line depreciation, the depreciation expense for the first year will be

$7850. Useful Life = 4 years Annual Depreciation = (original cost - salvage value)/useful life Annual Depreciation = (34000-2600)/4 Annual Depreciation = $7850

A building currently has a net book value of $673000 after three years of straight-line depreciation totalling $176000. The estimated residual value is $52700. What was the building's original cost?

$849000 Book Value = Original Cost - Accumulated Depreciation 673000 = Original Cost - 176000 Original Cost = $849000

An asset being depreciated with the straight-line method has a residual value of $12600 and accumulated depreciation of $32500 in its second year. What was the original cost of the asset if its useful life was 5 years?

$93850 Accumulated Depreciation of 2 years = $32500 Annual Depreciation = $16250 ($32500/2) Annual Depreciation = (original cost - salvage value)/useful life 16250= (original cost-12600)/5 Original cost = $93850

An asset with an original cost of $77700, a residual value of $7770, and a useful life of 5 years is given away without any consideration at the end of year five. The entry to record this is

Dr. Accumulated depreciation, Dr. Loss on disposal, Cr. Long-Term asset.

Barbara Corporation has a calendar year end and owns equipment that was purchased for $220300 on March 1, 2024. On December 31, 2025, after the year-end adjusting entries, the carrying amount of the asset is $152600. Due to damage, management determines the recoverable value to be $132100. Barbara would make the following entry related to this asset:

Dr. Loss on Impairment $20500 Cr. Accumulated Impairment Losses—Equipment $20500 (Carrying amount - Recoverable Value = 152600-132100)

Which of the following statements is correct with respect to capitalizing asset costs?

Some small expenses related to the purchase of an asset can be expensed for simplicity.

When deciding whether to expense or capitalize the costs incurred after acquiring a capital asset, which one of the following questions is NOT relevant to the decision?

Will these costs be incurred for more than one year?

Factors that may contribute to, or may be assessed in relation to, the impairment of PPE include

all of these are correct.

The Capital Cost Allowance (CCA)

all of these are correct.

Losses on the cash sale of capital assets

are the excess of the carrying value of the asset over the cash proceeds.

Companies can estimate when capital assets may need to be replaced in order to maintain operating capacity by using the following ratio(s):

average age %.

Depreciation Expense

cannot be used for calculating income taxes.

The carrying amount of goodwill

captures impairment losses.

If management wanted to show an increase in income over the life of an asset which method of depreciation should they choose?

declining-balance

A key reason that there are various acceptable depreciation methods is

different assets have different expected usage patterns.

Which of the following amortization methods ignore residual value in the calculation of the annual depreciation expense?

double-declining-balance and capital cost allowance

The only long-term asset that cannot be separated from the business and sold is

goodwill.

Which of the following would NOT be capitalized as part of a purchased asset's cost?

insurance costs

Which of the following would NOT be classified as property, plant, and equipment?

land purchased for resale

Goodwill

only arises when businesses are combined.

In 2024, as part of a property purchase, Melrose Ltd. incurred and paid the 2023 property taxes. These costs should be

recognized as a capital cost.

Which of the following methods of amortization is a company most likely to use for financial statement purposes if it purchases a patent?

straight-line

The depreciation method that most closely resembles what is allowable for tax purposes under CRA is

the declining-balance method.

When capitalizing the cost of a purchased asset, all of the following costs should be included in capitalization EXCEPT for

the full purchase price including any discounts.