Question 1

On January 1, 2011, Zane Manufacturing Company purchased a machine for $40,000. The company expects to use the machine a total of 24,000 hours over the next 6 years. The estimated sales price of the machine at the end of 6 years is $4,000. The company used the machine 8,000 hours in 2011 and 12,000 in 2012.
What is depreciation expense for 2012 if the company uses straight-line depreciation?

Accepted Answer

Depreciation expense = (Cost of machine - Estimated salvage value) / Estimated useful life= (40,000 - 4,000) / 6= 36,000 / 6= 6,000

Question 2

On January 1, 2011, Zane Manufacturing Company purchased a machine for $40,000. The company expects to use the machine a total of 24,000 hours over the next 6 years. The estimated sales price of the machine at the end of 6 years is $4,000. The company used the machine 8,000 hours in 2011 and 12,000 in 2012.
What is the book value of the machine at the end of 2012 if the company uses units-of-production depreciation?

Accepted Answer

The units-of-production depreciation method calculates depreciation based on usage. Total depreciation is $36,000 ($40,000 - $4,000). Depreciation per hour is $1.50 ($36,000 / 24,000 hours). For 2011 and 2012, the machine was used for 20,000 hours (8,000 + 12,000), resulting in $30,000 depreciation (20,000 hours x $1.50). The book value at the end of 2012 is $10,000 ($40,000 - $30,000).

Question 3

In 2011, a company's accountant expenses a payment that should be recorded as equipment. In 2012, which of the following is TRUE?

Accepted Answer

In 2011, the payment was incorrectly expensed instead of being capitalized as equipment, leading to higher expenses and lower assets. In 2012, since the equipment was not capitalized, depreciation expense is understated, making total expenses understated.

Question 4

Which of the following are acceptable methods of computing depreciation?

Accepted Answer

All of the methods listed (Units-of-production, Straight-line, Declining-balance) are acceptable and commonly used methods for computing depreciation.

Question 5

Furniture is an example of a(n):

Accepted Answer

Furniture is considered a depreciable fixed asset because it is a tangible asset with a useful life of more than one year, and its value decreases over time due to wear and tear or obsolescence.

Question 6

An asset costs $80,000 and has a salvage value of $7,000. It has a four-year life. Using double- declining-balance depreciation, year 1 depreciation would be:

Accepted Answer

The double-declining-balance depreciation method accelerates depreciation, applying double the straight-line depreciation rate. The straight-line rate for a 4-year life is 25% (100% / 4 years), so the double-declining rate is 50%. Year 1 depreciation is 50% of $80,000, which is $40,000.

Question 7

An asset costs $80,000 and has a salvage value of $7,000. It has a four-year life. Using double- declining-balance depreciation, year 2 depreciation would be:

Accepted Answer

The answer of An asset costs $80,000 and has a...

Question 8

A factory has a machine costing $76,000. It has a 5-year life and an estimated capacity of 150,000 parts. The salvage value of the machine is 20% of its cost. If 35,000 parts are machined in the first year of operation, what is the depreciation expense?

Accepted Answer

The depreciation expense is calculated using the units-of-production method. First, calculate the depreciable base: $76,000 cost - ($76,000 * 20% salvage value) = $60,800. Then, calculate the depreciation per unit: $60,800 / 150,000 parts = $0.40533 per part. For 35,000 parts, the depreciation expense is 35,000 * $0.40533 ≈ $14,187 rounded.

Question 9

An asset has a life of 3 years. It cost $90,000 and has an expected salvage value of $15,000. Using double-declining-balance depreciation, what is the depreciation for year 2?

Accepted Answer

The answer of An asset has a life of 3...

Question 10

Which of the following depreciation methods is used by MOST companies for their tax returns?

Accepted Answer

Most companies use the Declining-balance method, specifically the Modified Accelerated Cost Recovery System (MACRS), for tax purposes in the United States because it allows for larger depreciation expenses in the earlier years of an asset's life, reducing taxable income more quickly.

Question 11

A company purchased a truck for $50,000 on July 1, 2009. The truck has an estimated useful life of 5 years and will have no salvage value. It is estimated that the truck can be driven for 150,000 miles. The truck was driven for 18,000 miles during 2009. If the goal is to reduce taxable income to the lowest amount, which method should be elected and how much depreciation can be deducted in 2009?

Accepted Answer

The double declining-balance method provides the highest depreciation expense in the first year of an asset's life, thus reducing taxable income more than the other methods listed.

Question 12

A company purchased a computer on July 1, 2009. The computer has an estimated useful life of 5 years and will have no salvage value and was purchased for $10,000. It is estimated that the computer can be used for 5,000 hours. The computer was used for 450 hours during 2009. If the goal is to reduce taxable income to the lowest amount, which method should be elected and how much depreciation can be deducted in 2009?

Accepted Answer

The double declining-balance method provides the highest depreciation expense in the first year of an asset's life, thus reducing taxable income the most. For a $10,000 asset with a 5-year life, the annual rate is 40% (2/5). However, since the asset was in use for only half the year, the depreciation expense for 2009 would be $2,000 (half of 40% of $10,000).

Question 13

Which depreciation method is used most often for tax purposes?

Accepted Answer

The double-declining-balance method is often used for tax purposes because it accelerates depreciation, allowing businesses to reduce taxable income more quickly in the early years of an asset's life.

Question 14

If a company uses MACRS to compute depreciation, salvage value is:

Accepted Answer

Under the Modified Accelerated Cost Recovery System (MACRS), salvage value is not considered in the depreciation calculation. The entire cost of the asset is depreciated over its useful life as defined by MACRS guidelines.

Question 15

gain on the exchange of a like-kind plant asset is not recorded, but results in a smaller basis in the new asset received.

Accepted Answer

In a like-kind exchange, the gain is not recognized for accounting purposes; instead, it is deferred and reduces the basis of the new asset, resulting in lower depreciation expense over the life of the new asset.

Question 16

is a gain on disposal of an asset recorded?

Accepted Answer

A gain on disposal of an asset is recorded when the selling price of the asset exceeds its book value, which is the original cost minus accumulated depreciation.

Question 17

is a loss on disposal of an asset recorded?

Accepted Answer

A loss on disposal of an asset is recorded when the asset is sold for a price less than its book value, which is the asset's cost minus its accumulated depreciation.

Question 18

asset was purchased for $12,000. The asset's estimated useful life was 3 years and its residual value was $2,000. How much depreciation is deducted in the fourth year of use if the straight line method of depreciation was used?

Accepted Answer

Using the straight-line method, the annual depreciation is calculated as (Cost - Residual Value) / Useful Life. Here, it's ($12,000 - $2,000) / 3 = $3,333.33 per year for 3 years. By the fourth year, the asset is fully depreciated, so no depreciation is deducted.

Question 19

asset was purchased for $12,000. The asset's estimated useful life was 3 years and its residual value was $2,000. How much gain or loss is reported if the asset is sold for $3,000 at the beginning of the fourth year?

Accepted Answer

The asset's depreciation per year is ($12,000 - $2,000) / 3 = $3,333.33. Over 3 years, the total depreciation is $3,333.33 * 3 = $10,000. The book value at the beginning of the fourth year is $12,000 - $10,000 = $2,000. Selling it for $3,000 results in a $3,000 - $2,000 = $1,000 gain.

Question 20

asset was purchased for $12,000. The asset's estimated useful life was 3 years and its residual value was $2,000. How much gain or loss is reported if the asset is sold for $3,000 at the end of the fourth year?

Accepted Answer

The asset's depreciable amount is $12,000 - $2,000 = $10,000 over 3 years, so annual depreciation is $10,000 / 3 = $3,333.33. After 3 years, its book value is $12,000 - $10,000 = $2,000. Selling it for $3,000 results in a $1,000 gain.

Quiz 9: Plant Assets and Intangibles