Chapter 8

A company purchased a point of sale cash register on January 1 for $5,400. This register has a useful life of 10 years and a salvage value of $400. What would be the depreciation expense for the second-year of its useful life using the double-declining-balance method? A. $500 B. $800 C. $864 D. $1,000 E. $1,080

$864 Year 1: $5,400 x 2 x 10% = $1,080 Year 2: ($5,400 - $1,080) x 2 x 10% = $864

A company sold a machine that originally cost $100,000 for $50,000 cash. The accumulated depreciation on the machine was $40,000. The company should recognize a: A. $0 gain or loss B. $20,000 gain C. $10,000 loss D. $40,000 loss E. $60,000 gain

$10,000 loss

A company purchased a rope-braiding machine for $190,000. The machine has a useful life of eight years and a residual value of $10,000. It is estimated that the machine could produce 750,000 units of climbing rope over its useful life. In the first year, 105,000 units were produced. In the second year, production increased to 109,000 units. Using the units-of-production method, what is the amount of depreciation that should be recorded for the second year? A. $25,200 B. $26,160 C. $26,660 D. $27,613 E. $53,160

$26,160 109,000 units x [($190,000 - $10,000)/750,000 units] = $26,160

When originally purchased, a vehicle had an estimated useful life of eight years. The vehicle cost $23,000 and its estimated salvage value is $1,500. After four years of straight-line depreciation, the asset's total estimated useful life was revised from eight years to six years and there was no change in the estimated salvage value. The depreciation expense in year 5 equals: A. $5,375.00 B. $2,687.50 C. $5,543.75 D. $10,750.00 E. $2,856.25

$5,375.00 Accumulated depreciation, end of year 4: [($23,000 - $1,500)/8 years] x 4 years = $10,750 Depreciation expense year 5: [($23,000 - $10,750) - $1,500)/2 years = $5,375

Blanket Corporation sold equipment for cash of $40,500. Accumulated depreciation on the sale date amounted to $34,000 and a loss of $1,800 was recognized on the sale. What was the original cost of the asset? A. $72,300 B. $75,900 C. $4,700 D. $76,300 E. $42,300

$76,300 Received $40,500 - book value = $1,800 loss Book value = $40,500 + $1,800 = $42,300 Cost = $42,300 + $34,000 = $76,300

A company's annual accounting period ends on December 31. During the current year, a depreciable asset that cost $24,000 was purchased on October 1. The asset has a $1,000 estimated salvage value. The company uses straight-line depreciation and expects the asset to have a six-year life. What is the total depreciation expense for the current year? A. $3,833.33 B. $958.33 C. $4,000.00 D. $1,000.00 E. $1,041.67

$958.33 ($24,000 - $1,000)/6 x 3/12 = $958.33

A machine originally had an estimated useful life of 5 years, but after 3 complete years it was decided that the original estimate of useful life should have been 10 years. At that point the remaining cost to be depreciated should be allocated over the remaining: A. 2 years B. 5 years C. 7 years D. 8 years E. 10 years

7 years

The total cost of an asset less its accumulated depreciation is called: A. Historical cost B. Book value C. Present value D. Current (market) value E. Replacement cost

Book value

The formula for computing annual straight-line depreciation is: A. Depreciable cost divided by useful life in units. B. Cost plus salvage value divided by the useful life in years C. Cost less salvage value divided by the useful life in years. D. Cost divided by useful life in years. E. Cost divided by useful life in units.

Cost less salvage value divided by the useful life in years

A depreciation method in which a plant asset's depreciation expense for a period is determined by applying a constant depreciation rate each period to the asset's beginning book value is called: A. Book value depreciation. B. Declining-balance depreciation. C. Straight-line depreciation. D. Units-of-production depreciation. E. Modified accelerated cost recovery system (MACRS) depreciation.

Declining-balance depreciation

Depreciation: A. Measures the decline in market value of an asset. B. Measures physical deterioration of an asset. C. Is the process of allocating to expense the cost of a plant asset. D. Is an outflow of cash from the use of a plant asset. E. Is applied to land.

Is the process of allocating to expense the cost of a plant asset

A company paid $150,000, plus a 6% commission, and $4,000 in closing costs for a property. The property included land appraised at $87,500, land improvements appraised at $35,000, and a building appraised at $52,500. What should be the allocation of this property's costs in the company's accounting records? A. Land $75,000; Land Improvements, $30,000; Building, $45,000 B. Land $75,000; Land Improvements, $30,800; Building, $46,200 C. Land $81,500; Land Improvements, $32,600; Building, $48,900 D. Land $79,500; Land Improvements, $32,600; Building, $47,700 E. Land $87,500; Land Improvements; $35,000; Building; $52,500

Land $81,500; Land Improvements, $32,600; Building, $48,900

Both the straight-line depreciation method and the double-declining-balance depreciation method: A. Produce the same total depreciation over an asset's useful life. B. Produce the same depreciation expense each year. C. Produce the same book value each year. D. Are acceptable for tax purposes only. E. Are the only acceptable methods of depreciation for financial reporting.

Produce the same total depreciation over an asset's useful life

Plant assets are: A. Tangible assets used in the operation of a business that have a useful life of more than one accounting period. B. Current assets. C. Held for sale. D. Intangible assets used in the operations of a business that have a useful life of more than one accounting period. E. Tangible assets used in the operation of business that have a useful life of less than one accounting period.

Tangible assets used in the operation of a business that have a useful life of more than one accounting period