Question 1

The matching principle dictates whether the cost of a repair should be expensed or depreciated.

Accepted Answer

The matching principle states that expenses should be recognized in the same period as the related revenues. So, if the repair cost relates to an asset that is still in use and generating revenues, the cost should be depreciated over the remaining useful life of the asset. If the repair cost is not related to an asset still in use, it should be expensed immediately.

Question 2

An asset has a cost of $50,000 with a residual value of $10,000.It has a life of 5 years and was purchased on January 1.Its fourth full year of depreciation expense under double-declining-balance will be:

Accepted Answer

The answer of An asset has a cost of $50,000...

Question 3

Only Organics has a delivery truck that was purchased for $42,000 and has a salvage value of $5,000.It expects the truck to last 125,000 miles.During Year 1,the truck traveled 32,500 miles and during Year 2,the truck traveled 28,500 miles.What is the depreciation expense for Year 2 to the nearest dollar using the units-of-production method? (Round to three decimal places to get the unit rate. )

Accepted Answer

The answer of Only Organics has a delivery truck that...

Question 4

After an asset is fully depreciated,the asset:

Accepted Answer

Once an asset is fully depreciated, it remains on the Balance Sheet at its original cost minus the accumulated depreciation. This is known as the asset's book value, and it represents the value of the asset in the company's accounting records. While the asset may have no monetary value, it still has a historical cost that must be recorded on the Balance Sheet.

Question 5

Expenditures incurred,such as changing the oil and filter on a delivery truck,would be considered ordinary repairs.

Accepted Answer

Ordinary repairs are regular maintenance expenses that are necessary to keep an asset in good working condition and do not add any significant value or extend the asset's life beyond its original estimate. Changing the oil and filter on a delivery truck falls under this category.

Question 6

Acme paid $100,000 for a machine with a $5,000 salvage value and an estimated life of 190,000 hours.
Acme reports on a calendar year basis and used the machine for 1,700 hours during the first year it owned the asset.Which of the following statements accurately compare the first year depreciation expense if the asset had been purchased on January 1 of the current year versus a March 1 acquisition date.

Accepted Answer

The depreciation expense is calculated based on usage (hours), not the date of acquisition. Therefore, the expense remains the same regardless of whether the machine was acquired on January 1 or March 1.

Question 7

Custom Closets purchased office fixtures on January 1.The cost was $12,000,and the fixtures had a residual value of $2,000.The fixtures were given a useful life of 8 years.After the end of three years,it was determined that the fixtures would be obsolete in 2 more years and their residual value would still be $2,000.What will be the depreciation under the straight-line method to the nearest dollar be for the fourth year?

Accepted Answer

The remaining book value after 3 years is $7,500. With 2 years left, the annual depreciation is ($7,500 - $2,000) / 2 = $2,750.

Question 8

It is determined that a computer's depreciation expense for the year is $3,500.The journal entry to record this will be:

Accepted Answer

The journal entry to record depreciation expense is to debit Depreciation Expense - computer and credit Accumulated Depreciation, computer. This is because the depreciation expense represents an increase in the Accumulated Depreciation account, which is a contra asset account. Therefore, option C is the most appropriate journal entry to record the depreciation expense.

Question 9

The depreciation method often used for income tax purposes is the:

Accepted Answer

The double-declining balance method is often used for income tax purposes because it accelerates depreciation, allowing for larger deductions in the early years of an asset's life.

Question 10

After 4 years,a machine had an accumulated depreciation of $38,000.Originally,the machine had an anticipated life of 8 years and a salvage value of $5,000.If the current book value after 4 years is $43,000 and the machine has only 2 years of useable life left,how much will be depreciated in Year 5 and in Year 6 using the straight-line method of depreciation,and assuming the salvage value is still $5,000?

Accepted Answer

The answer of After 4 years,a machine had an accumulated...

Question 11

A company purchased a van at a cost of $42,000 and expects its salvage value to be $6,000 after 120,000 miles of service.Using the units-of-production method,what is the first year's depreciation if the van is driven 24,000 miles?

Accepted Answer

To calculate the depreciation using units of production method, we need to determine the depreciation per mile.

Total miles the vehicle is expected to be driven = 120,000 - 0 salvage miles = 120,000 miles

Depreciation per mile = (Cost of the van - Salvage value) / Total number of miles the vehicle is expected to be driven = ($42,000 - $6,000) / 120,000 miles = $0.30/mile

Depreciation for the first year = deprecation per mile x number of miles driven in the first year = $0.30/mile x 24,000 miles = $7,200

Therefore, the first year's depreciation is $7,200. The best choice is (C).

Question 12

If an asset generates revenue evenly over time,the depreciation method best suited for this asset would be the:

Accepted Answer

The straight-line method is best suited for assets that generate revenue evenly over time because it spreads the cost of the asset evenly over its estimated useful life. This results in a constant depreciation expense each year, which matches the pattern of the asset's revenue generation.

Question 13

A building was purchased on August 1 for $450,000.It has a salvage value of $38,000 and a useful life of 35 years.To the nearest dollar,how much will the depreciation expense for the building be for the first year ended December 31,using the straight-line method?

Accepted Answer

To calculate annual depreciation using the straight-line method, we need to use this formula:

Depreciation Expense = (Cost of the asset - Salvage Value) / Useful life

In this case, the cost of the building is $450,000, the salvage value is $38,000, and the useful life is 35 years.

Depreciation Expense = ($450,000 - $38,000) / 35 = $12,857.14 per year

However, we need to calculate the depreciation expense only for the first year ended December 31, which is 5 months after August 1.

Therefore, we need to use only 5/12 of the annual depreciation expense:

Depreciation Expense for the first year = ($12,857.14 x 5) / 12 = $5,356.96

Rounding this to the nearest dollar gives us a depreciation expense of $4,905.

Therefore, the correct answer is choice C.

Question 14

Replacing an engine on a delivery truck would be considered a betterment.

Accepted Answer

The answer of Replacing an engine on a delivery truck...

Question 15

A method best suited for depreciating items,such as copy machines and vehicles,would be the:

Accepted Answer

The answer of A method best suited for depreciating items,such...

Question 16

Ironworks Industries purchased a piece of equipment for $65,000 with an estimated salvage value of $15,000 on January 1.Its estimated life is 5 years.To the nearest dollar,what is the equipment's depreciation using double-declining-balance for year 2?

Accepted Answer

To calculate depreciation using double-declining-balance, we first need to find the depreciation rate, which is 2 divided by the estimated life (in this case, 5 years). So the depreciation rate is 40% (2/5).

For year 1, the depreciation expense would be $26,000 (40% of $65,000).

For year 2, we need to start with the remaining book value from the end of year 1, which is $39,000 ($65,000 - $26,000). Applying the depreciation rate of 40%, we get a depreciation expense of $15,600 ($39,000 x 40%).

Therefore, the correct answer is choice C) $15,600.

Question 17

The depreciation method in which the depreciable cost of an asset is apportioned equally over its estimated life in terms of month or years is called the:

Accepted Answer

The straight-line method is the only option that involves apportioning the depreciable cost of an asset equally over its estimated life, in either months or years. The double-declining-balance method involves accelerating the depreciation expense in the earlier years of the asset's life, while the units-of-production method focuses on how much the asset is actually used rather than time-based depreciation. The amortization method is typically used for intangible assets, such as patents or trademarks, rather than tangible property like equipment or buildings.

Question 18

Leo's Lawncare purchased equipment on January 1.The cost was $15,000,and the equipment had a residual value of $4,000.The equipment was given a useful life of 7 years.After the end of two years,it was determined that the equipment would be obsolete in 3 more years and the residual value would still be $4,000.What will be the depreciation under the straight-line method to the nearest dollar be for the third year?

Accepted Answer

The initial depreciation was calculated over 7 years: ($15,000 - $4,000) / 7 = $1,571 per year. After 2 years, the book value is $15,000 - (2 * $1,571) = $11,858. With 3 years remaining and a residual value of $4,000, the new depreciation is ($11,858 - $4,000) / 3 = $2,619 per year.

Question 19

If an asset produces more revenue in its early years,the depreciation method best suited for this asset would be the:

Accepted Answer

The double-declining balance method is an accelerated depreciation method that results in higher depreciation expense in the early years of an asset's useful life. This makes it the best choice for an asset that produces more revenue in its early years.

Question 20

Adding on 30 rooms to an existing hotel would be considered a betterment because the addition added to the hotel's capacity.

Accepted Answer

Adding 30 rooms to a hotel increases its capacity, which is a betterment.

Quiz 8: Long-Term and Other Assets