Quiz Questions for Chapter 9
1.
A truck was purchased for $25,000. It has a six-year life and a $4,000 salvage value. Using straight-line depreciation, what is the asset’s carrying value (book value) after 2 1/2 years?
a. $8,750.
b. $12,250.
c. $14,583.
d. $16,250.
2.
On January 1, 2003, Superior Landscaping Company paid $17,000 to buy a stump grinder. If Superior uses the grinder to remove 2,500 stumps per year, it would have an estimated useful life of 10 years and a salvage value of $4,500. The amount of depreciation expense for the year 2003, using units-of-production depreciation and assuming that 3,500 stumps were removed, is
a. $2,380.
b. $1,750.
c. $1,700.
d. $1,250.
3.
The sale for $2,000 of equipment
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a.
b.
c.
d.
13
Assets =
+─
+─
─
n/a
Liab. n/a n/a n/a n/a
+ Equity n/a n/a
─
n/a
Rev. ─ n/a n/a n/a n/a
Exp. n/a n/a
+
n/a
= Net Inc. n/a n/a
─
n/a
Cash Flow
─ IA n/a ─ OA n/a KLM Company experienced an accounting event that affected its financial statements as indicated below:
Assets =
─
Liab. n/a + Equity
─
Rev. ─ n/a Exp.
+
= Net Inc.
─
Which of the following events could have caused these effects?
a. recognizing depreciation.
b. paying cash for a capital expenditure.
c. amortizing a patent.
d. none of the above.
Cash Flow
─ OA
14. Which of the following correctly matches the type of long-term asset with the term used to identify how that asset’s cost is expensed?
Building
Oil Reserve
Copyright
a. Amortization
Depreciation
Depletion
b. Depletion
Amortization
Depletion
c. Amortization
Depletion
Depreciation
d. Depreciation
Depletion
Amortization
15. Which of the following is true?
a. The book value of an asset is its estimated market value.
b. The primary purpose of recording depreciation expense on the income statement is to reduce income tax expense.
c. Recording depreciation expense decreases the book value of the asset in the year it was used to produce revenue.
d. The accumulated deprecation for an asset provides the cash needed to replace the asset at the end of its useful life.
Quiz Questions for Chapter 10
The following information
2. What is the effect of the depreciation accounting method change on the reported income in 1984? How will this change affect profits in future years?
The value of fixed assets typically decreases over time. The amount of the decrease each year is accounted for and is called depreciation. Depreciation for the year is expensed on the income statement and added to the accumulated depreciation account on the balance sheet. So the value of the fixed assets on the balance sheet is reduced by the accumulated depreciation.
| In Year 1, depreciation is $5,000 plus 15% of the asset’s outlayFrom Year 2, depreciation is either * 30% of the asset’s book value; or * if the asset’s book value is less than $6,500, depreciation is the asset’s book value (i.e. asset is depreciated to zero once book value < $6,500)
An impairment loss shall be recognized only if the carrying amount of a long-lived asset (asset group) is
c. The amounts recognized as of the acquisition date for each major class of assets acquired and liabilities assumed.
Assets are to be recorded and valued based of the type of asset there are.
A company purchases equipment costing $50 000, which it expects to last for 12 years and to have
6. Forman, Inc. owns machinery with a cost of $250,000. Its estimated useful life is 10 years and a $30,000 salvage value.
b. The inventory write down recorded, as an expense by the company is $4.4 million. It is measured at lower of cost and net realizable value. Cost is measured by weighted average using standard cost method or
Natalie estimates that all of her baking equipment will have a useful life of 5 years or 60 months and no salvage value. (Assume Natalie decides to record a full month’s worth of depreciation, regardless of when the equipment was obtained by the business.)
It is wrong to take depreciation on business expenses and to claim it as assets. Operating expenses would be distorted.
Depreciation involves spreading the cost of an item over several years or over its useful lifetime. This is an accounting of the reduction in value of the merchandise and it will be reflected as an expense on the company’s income statement. Therefore, this is important because nothing holds its full value over time and organizations need to account for the devaluation. Accountants and financial officers follow GAAP guidelines to determine depreciation. The depreciation of an item is an estimated guess not a proven reality.
costs $350,000, that will have a useful life of eight years, and that will have a salvage value of $25,000. If this
Since depreciation expense is subtracted in computing profit, but does not affect cash, it is added back to convert profit to cash flows from operating activities.
One of these is with regards to goodwill and intangible assets with identifiable useful lives.