Question 1

The double-declining-balance method is an accelerated depreciation method.

Accepted Answer

The double-declining-balance method is an accelerated depreciation method as it results in higher depreciation expense in the early years of an asset's life and gradually decreasing depreciation in later years. This method assumes that an asset will lose its value more quickly in the early years of use and less quickly in later years.

Question 2

Residual value is incorporated in the initial calculations for double-declining-balance depreciation.

Accepted Answer

Residual value (also known as salvage value) is taken into account in double-declining-balance depreciation calculations, as it is subtracted from the cost or asset value before starting the depreciation process.

Question 3

It is necessary for a company to use the same depreciation method for all of its depreciable assets.

Accepted Answer

A company may use different depreciation methods for different types of assets based on their useful lives, salvage value, and other factors. For example, a company may use straight-line depreciation for office equipment and double-declining balance depreciation for vehicles.

Question 4

The amount of the depreciation expense for the second full year of use of a fixed asset costing $100,000, with an estimated residual value of $5,000 and a useful life of 4 years, is $25,000 by the declining-balance method at twice the straight-line rate.

Accepted Answer

Using the declining-balance method at twice the straight-line rate, the depreciation rate would be 40% (2 x 1/4), which means the depreciation expense for the second year would be $32,000 (40% x [$100,000 - $0]). However, since the residual value cannot be depreciated, we subtract it from the asset's cost to get the depreciable base: $95,000.

So, the depreciation expense for the second year would be $25,600 (40% x $95,000). Therefore, the statement is false, since the depreciation expense is not $25,000.

Question 5

The amount of depreciation expense for the first full year of use of a fixed asset costing $95,000, with an estimated residual value of $5,000 and a useful life of 5 years, is $19,000 by the straight-line method.

Accepted Answer

The answer of The amount of depreciation expense for the...

Question 6

All property, plant, and equipment assets are depreciated over time.

Accepted Answer

Not all property, plant, and equipment (PPE) assets are depreciated; land is a common example of a PPE asset that is not depreciated because it does not typically lose value over time.

Question 7

It is necessary for a company to use the same depreciation method for financial statements and for determining income taxes.

Accepted Answer

The answer of It is necessary for a company to...

Question 8

Assets may be grouped according to common traits and depreciated by using a single composite rate.

Accepted Answer

This statement is true. Assets can be grouped according to common traits, such as their expected useful life or cost, and depreciated using a single composite rate. This simplifies the accounting process and provides greater consistency in how assets are depreciated.

Question 9

The units of production depreciation method provides a good match of expenses against revenue.

Accepted Answer

The units of production depreciation method matches the depreciation expense with actual usage or production, providing a better match of expenses against revenue. This is because the asset can be allocated an equal amount of depreciation for each unit produced, and the more units produced, the more depreciation expense is recognized. Therefore, this method accurately reflects the decline in the asset's value over the course of its useful life.

Question 10

The normal balance of the accumulated depreciation account is debit.

Accepted Answer

The answer of The normal balance of the accumulated depreciation...

Question 11

When minor errors occur in the estimates used in the determination of depreciation, the amounts recorded for depreciation expense in the past should be corrected.

Accepted Answer

Minor errors in estimates are not considered material and do not require correction of depreciation expenses in the past. Instead, the errors should be corrected prospectively by adjusting future depreciation expenses.

Question 12

For income tax purposes most companies use an accelerated deprecation method called double declining balance.

Accepted Answer

The answer of For income tax purposes most companies use...

Question 13

When depreciation estimates are revised, all years of the asset's life are affected.

Accepted Answer

When depreciation estimates are revised, it affects the depreciation expense calculation from the point of revision forward, not the years that have already passed.

Question 14

An estimate of the amount which an asset can be sold at the end of its useful life is called residual value.

Accepted Answer

Residual value is the estimated amount that an asset can be sold for at the end of its useful life.

Question 15

Once the useful life of a depreciable asset has been estimated and the amount to be depreciated each year has been determined, the amounts can be changed.

Accepted Answer

The answer of Once the useful life of a depreciable...

Question 16

The depreciable cost of a building is the same as its acquisition cost.

Accepted Answer

The depreciable cost of a building may not be the same as its acquisition cost because it also includes costs associated with improvements, renovations, or repairs that increase the building's useful life or improve its performance. Additionally, certain costs such as land value are not depreciable.

Question 17

The double declining balance depreciation method calculates depreciation each year by taking twice the straight line rate times the book value of the asset at the beginning of each year.

Accepted Answer

The statement accurately describes the double declining balance depreciation method.

Question 18

The amount of depreciation expense for a fixed asset costing $95,000, with an estimated residual value of $5,000 and a useful life of 5 years or 20,000 operating hours, is $21,375 by the units-of-production method during a period when the asset was used for 4,500 hours.

Accepted Answer

The answer of The amount of depreciation expense for a...

Question 19

As a company records depreciation expense for a period of time a corresponding cash inflow from investing activities is reported on the statement of cash flows.

Accepted Answer

Depreciation expense is a non-cash expense and as such, it is added back to net income in the operating activities section of the statement of cash flows. It does not result in a cash inflow from investing activities.

Question 20

The book value of a fixed asset reported on the balance sheet represents its market value on that date.

Accepted Answer

The book value of a fixed asset on the balance sheet represents the historical cost of the asset, minus any accumulated depreciation. It does not necessarily reflect the current market value of the asset.

Quiz 10: Fixed Assets and Intangible Assets