Question 1

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 2

Residual value is not incorporated in the initial calculations for double-declining-balance depreciation.

Accepted Answer

Residual value, also known as salvage value, is not taken into account when calculating double-declining-balance depreciation. This is because the double-declining-balance method assumes that the asset will be fully depreciated over its useful life, and there will be no residual value left at the end.

Question 3

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, and sometimes minus any land value. Therefore, the depreciable cost of a building may be less than its acquisition cost.

Question 4

Regardless of the depreciation method, the amount that will be depreciated during the life of the asset will be the same.

Accepted Answer

The total depreciation expense over the life of an asset will be the same regardless of the depreciation method used; what varies is the timing and pattern of the expense recognition.

Question 5

Capital expenditures are costs that are charged to stockholders' equity accounts.

Accepted Answer

Capital expenditures are costs that are associated with the acquisition or upgrading of long-term assets and are usually capitalized on the balance sheet as an asset, not charged to stockholders' equity accounts.

Question 6

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 statement accurately describes the double-declining-balance depreciation method.

Question 7

It is not necessary for a company to use the same depreciation method for financial statements and for determining income taxes.

Accepted Answer

While the same method may simplify the accounting process, companies may choose different methods for financial statements and tax purposes based on various factors such as tax laws and financial reporting regulations. However, any differences in depreciation methods must be disclosed in financial statements.

Question 8

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

Accepted Answer

The units-of-output depreciation method matches expenses to revenue by spreading the cost of an asset over the units of output it produces. This method is considered a good match of expenses against revenue for companies whose assets are used to produce output, such as manufacturers.

Question 9

Revising depreciation estimates affects the amounts of depreciation expense recorded in past periods.

Accepted Answer

Revising depreciation estimates affects the depreciation expense in current and future periods, not past periods. Past financial statements are not retroactively adjusted for changes in depreciation estimates.

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 method where a higher depreciation expense is charged in the earlier years of an asset's life and gradually reduces over time.

Question 11

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-output method during a period when the asset was used for 4,500 hours.

Accepted Answer

The depreciation expense using the units-of-output method is calculated based on the actual usage of the asset. The formula is: [(Cost - Residual Value) / Total Estimated Usage] * Actual Usage. So, for this asset, the calculation is [($95,000 - $5,000) / 20,000 hours] * 4,500 hours = $20,250.

Question 12

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 13

An estimate of the amount for 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 14

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 double-declining-balance method.

Accepted Answer

Double declining balance rate = (1 / 4) × 2 = 50%
First-year depreciation = $100,000 × 50% = $50,000
 Second-year depreciation = ($100,000 - $50,000) × 50% = $25,000

Question 15

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 16

Intangible assets differ from property, plant, and equipment assets in that they lack physical substance.

Accepted Answer

Intangible assets include things like patents, trademarks, copyrights, and goodwill, which are not physical in nature. Property, plant, and equipment assets, on the other hand, refer to things like land, buildings, and machinery, which all have physical substance.

Question 17

Minerals removed from the earth are classified as intangible assets.

Accepted Answer

Minerals removed from the earth are considered natural resources and tangible assets. Intangible assets refer to non-physical assets such as patents, trademarks, and copyrights.

Question 18

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 depreciable assets based on the asset's useful life, salvage value, and other factors. However, the same depreciation method should be used consistently for each type of asset within the company.

Question 19

The method used to calculate the depletion of a natural resource is the straight-line method.

Accepted Answer

The straight-line method is used to calculate depreciation of fixed assets, not depletion of natural resources. The method used to calculate depletion of natural resources is typically the units-of-production method or the percentage depletion method.

Question 20

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.

Accepted Answer

The estimated useful life and depreciation amount can be revised if there is a significant change in the expected usage or residual value of the asset. This is called a change in accounting estimate and requires disclosure in the financial statements.

Quiz 9: Long-Term Assets: Fixed and Intangible