Question 1

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 2

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 3

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 4

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 is a non-cash expense, meaning it does not involve any actual cash outflow. Therefore, there is no corresponding cash inflow from investing activities reported on the statement of cash flows.

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

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

Accepted Answer

The depreciable cost of a building is the acquisition cost minus any salvage value, which is the amount that can be recovered from the building at the end of its useful life. Therefore, the depreciable cost is usually less than the acquisition cost.

Question 7

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 depreciation estimates are typically corrected in future periods rather than adjusting past records, as they are considered changes in accounting estimates.

Question 8

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

Accepted Answer

The same depreciation method must be used for both financial statements and income tax purposes. This is because the IRS requires companies to use the same method for both purposes.

Question 9

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

Accepted Answer

This statement is true. Residual value is an estimation of the future value of an asset at the end of its useful life, or when it is no longer needed by the company. This value is important for determining the depreciation expense of an asset and for calculating its net book value.

Question 10

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

Accepted Answer

The double-declining-balance method is a type of accelerated depreciation that results in higher depreciation expenses in the earlier years of an asset's life, and lower expenses in the later years.

Question 11

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

This is the correct explanation of the double declining balance depreciation method.

Question 12

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 units-of-production method calculates depreciation based on actual usage. The depreciation per hour is ($95,000 - $5,000) / 20,000 hours = $4.50 per hour. For 4,500 hours, the depreciation expense is 4,500 hours * $4.50/hour = $20,250, not $21,375.

Question 13

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

Accepted Answer

The units of production depreciation method matches the amount of depreciation expense with the actual usage of the asset, which provides a better alignment of expenses with the revenue generated from the asset. Therefore, it provides a good match of expenses against revenue.

Question 14

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

Accepted Answer

Double-declining-balance depreciation method takes into account the residual value of the asset, and this residual value is deducted from the initial cost before calculating depreciation expenses.

Question 15

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 16

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 reported on the balance sheet represents its cost less accumulated depreciation, not its market value. The market value of a fixed asset may be higher or lower than its book value.

Question 17

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

Once the useful life of a depreciable asset has been estimated and the amount to be depreciated each year has been determined, the amounts cannot be changed.

Question 18

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

Accepted Answer

This statement is true. Assets that share common characteristics, such as being in the same asset class, can be grouped together and assigned a single composite depreciation rate. This simplifies the depreciation process and makes it more manageable.

Question 19

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

Accepted Answer

A company can choose different depreciation methods for different types of assets based on factors such as asset lifespan, usage, and expected technological advancements.

Question 20

The normal balance of the accumulated depreciation account is debit.

Accepted Answer

The normal balance of the accumulated depreciation account is a credit because it is a contra asset account, which offsets the asset account it is associated with.

Quiz 10: Fixed Assets and Intangible Assets