Chapter 7
Depreciation is a process by which a) replacement funds are accumulated for plant and equipment b) the decline in market value of plant and equipment is determined and recorded c) the cost of plant and equipment is allocated to expense over the time periods which benefit from the use of the asset d) the difference between current market value and historical cost of plant and equipment
c) the cost of plant & equipment is allocated to expense over the time periods which benefit from the use of the asset
Which of the following sets of factors is needed to calculate depreciation on plant and equipment? a) the asset's acquisition cost, replacement cost, and its estimated residual value b) the estimated residual value of the asset, its replacement cost, and its market value c) the asset's replacement cost, its estimated life, and its estimated residual life d) the estimated life of the asset, its acquisition cost, and its estimated residual value
d) the estimated life of the asset, its acquisition cost, & its estimated residual value
This company purchased a truck at a cost of $12,000. The truck has an estimated residual value of $2,000 and an estimated life of 5 years, or 100,000 hours of operation. The truck was purchased on January 1, 2019, and was used 27,000 hours in 2019 and 26,000 hours in 2020. If the company uses the units-of-production method, what is the depreciation rate per hour for the equipment?
$0.10 Depr Rate per Hour = (cost - residual value) / total expected usage Depr Rate per Hour = (12,000 - 2,000) / 100,000 = $0.10
An oil company purchased 10,000 acres of land on January 1, 2019, for $5,000,000, on which it developed an underground oil site. The company spent $11,000,000 to prepare the site for operation but believes that 500,000 barrels of oil can be extracted from the site over 5 years after drilling begins. The land has a residual value of $250,000. Assuming 50,000 barrel of oil were extracted from the land in 2021, how much depletion would be recorded?
$1,575,000 use units of production cuz oil is natural resource Total Cost = 5,000,000 + 11,000,000 = 16,000,000 Depletion Rate = (16,000,000 - 250,000) / 500,000 = $31.50 Depletion Exp = 31.50 x 50,000 = $1,575,000
This company purchased a semi truck at the beginning of 2019 at a cost of $100,000. The truck had an estimated life of 5 years, an estimated residual value of $20,000, and will be depreciated using the straight-line method. On January 1, 2021, the company made major repairs of $30,000 to the truck that extended the life 3 years. Thus, starting with 2021, the truck has a remaining life of 5 years and a new salvage value of $8,000. What amount should be record as depreciation expense each year starting in 2021?
$18,000 1. BV on 01/01/21 2. Remaining Useful Life = 5 years 3. New Residual Value = 8,000 BV = cost - acc depr Old Estimation to calculate Acc Depr Depr Exp = (100,000 - 20,000) / 5 = 16,000 Acc Depr = 16,000 x 2 = 32,000 BV = 100,000 - 32,000 = 68,000 on 01/01/21 New BV = 68,000 + 30,000 = 98,000 Depr Exp = (98,000 - 8,000) / 5 = $18,000
This company purchased a truck at a cost of $12,000. The truck has an estimated residual value of $2,000 and an estimated life of 5 years, or 100,000 hours of operation. The truck was purchased on January 1, 2019, and was used 27,000 hours in 2019 and 26,000 hours in 2020. If the company uses the double-declining balance depreciation method, what amount is the depreciation expense in 2020?
$2,880 Depr Exp = BV x (2 / useful life) BV = cost - acc depr 2019 Depr Exp = (12,000) x 2/5 = 4,800 2020 Depr Exp = (12,000 - 4,800) x 2/5 = $2,880
A company purchased a patent for $100,000 at the beginning of the current year which it believes has an expected useful life of 5 years. Fortunately, the patent has a legal life of 20 years. How much amortization expense should be recorded in the current year?
$20,000 use straight-line method cuz patent is an intangible asset residual value = 0, useful life for 5 years Depr Exp = 100,000 / 5 = $20,000
This company purchased a truck at a cost of $12,000. The truck has an estimated residual value of $2,000 and an estimated life of 5 years, or 100,000 hours of operation. The truck was purchased on January 1, 2019, and was used 27,000 hours in 2019 and 26,000 hours in 2020. If the company uses the straight-line method of depreciation, what is the book value at December 31, 2021?
$6,000 Depr Exp = (cost - residual vaue) / useful life Depr Exp = (12,000 - 2,000) / 5 = 2,000 Acc Depr = 2,000 x 3 = 6,000 BV = 12,000 - 6,000 = $6,000
This company purchased a truck at a cost of $12,000. The truck has an estimated residual value of $2,000 and an estimated life of 5 years, or 100,000 hours of operation. The truck was purchased on January 1, 2019, and was used 27,000 hours in 2019 and 26,000 hours in 2020. Based on the information presented above, what method of depreciation will maximize depreciation expense in 2019?
double-declining
On January 1, a company sold a machine for $5,000 that it had used for several years. The machine cost $11,000, and had accumulated depreciation of $4,500 at the time of sale. What gain or loss will be reported on the income statement for the sale of the machine for the year ended December 31?
loss of $1,500 Book Value > Market Value = loss Book Value < Market Value = gain BV = cost - acc depr = 11,000 - 4,500 = 6,500 6,500 > 5,000 = loss of $1,500
