Depreciation Test Bank Docx Chapter 14

Chapter 14

Depreciation

True/False Questions
 

1. Trade-in value is the same as the residual value. 
True    False

2. Depreciation is an exact science that requires no estimation. 
True    False

3. All assets that last longer than one year will be depreciated. 
True    False

4. Copyrights will depreciate. 
True    False

5. Physical deterioration is related to an asset’s estimated amount of usefulness. 
True    False

6. Land can be depreciated. 
True    False

7. If a car is driven strictly for pleasure, it still can be depreciated. 
True    False

8. Product obsolescence means the asset has been fully depreciated. 
True    False

9. Depreciation expense is listed on the balance sheet. 
True    False

10. Accumulated depreciation records the history of depreciation taken to date. 
True    False

11. Depreciation expense results in an indirect tax savings. 
True    False

12. MACRS is not used for tax purposes. 
True    False

13. The straight-line method of depreciation is really an accelerated type of depreciation. 
True    False

14. Cost minus residual divided by number of years equals depreciation expense taken each year in the straight-line method. 
True    False

15. Residual value means the actual cash one receives at end of the life of the asset. 
True    False

16. A depreciation schedule for partial years must cover at least three years. 
True    False

17. A company using the straight-line method over 10 years would be depreciating its asset at a 10% rate each year. 
True    False

18. In a straight-line depreciation schedule, the depreciation expense is the same each year. 
True    False

19. Book value is cost plus accumulated depreciation. 
True    False

20. In the straight-line method, book value never goes below the residual value. 
True    False

21. The units-of-production method is based on the passage of time. 
True    False

22. Residual value is not used in calculating the depreciation expense per unit of product, miles driven, etc. 
True    False

23. The book value in the units-of-production method should never go below the residual value. 
True    False

24. ACRS came before MACRS. 
True    False

25. Residual value is deducted in calculating depreciation expense in the declining-balance method. 
True    False

26. In the declining-balance method, we can depreciate below the residual value. 
True    False

27. The Modified Accelerated Cost Recovery System must be used for both financial and tax reporting. 
True    False

28. MACRS does not use residual value; thus, assets are depreciated to zero. 
True    False

Multiple Choice Questions
 

29. Which one of the following does not depreciate? 
A. Building
B. Land
C. Truck
D. Computer
E. None of these

30. Straight-line depreciation does not: 
A. Use residual to calculate yearly depreciation
B. Have a book value
C. Accelerate depreciation
D. Let the cost remain the same
E. None of these

31. Book value is: 
A. Cost plus accumulated depreciation
B. Cost minus accumulated depreciation
C. Cost divided by accumulated depreciation
D. Cost times accumulated depreciation
E. None of these

32. Which one is not based on the passage of time? 
A. Straight-line method
B. Declining-balance method
C. Units-of-production method
D. None of these
E. All of these

33. For partial-years depreciation, if an asset is purchased on February 8, how many months’ depreciation will be taken for the year? 
A. 12
B. 11
C. 10
D. 9
E. None of these

34. Depreciation expense in the declining-balance method is calculated by the depreciation rate: 
A. Times book value at beginning of year
B. Plus book value at end of year
C. Divided by book value at beginning of year
D. Times accumulated depreciation at year end
E. None of these

35. Which method does not deduct residual value in calculating depreciation expense? 
A. Straight-line method
B. Units-of-production method
C. Declining-balance method
D. None of these
E. All of these

36. If a car is depreciated in four years, the rate of depreciation using twice the straight-line rate is: 
A. 25%
B. 50%
C. 100%
D. 75%
E. None of these

37. Depreciation expense is located on the: 
A. Income statement
B. Balance sheet
C. Both A and B
D. None of these
E. All of these

38. Cost recovery using MACRS is calculated by: 
A. Rate divided by cost
B. Rate × cost
C. Rate + cost
D. Rate – cost
E. None of these

39. A truck costs $16,000 with a residual value of $1,000. It has an estimated useful life of five years. If the truck was bought on July 3, what would be the book value at the end of year 1 using straight-line rate? 
A. $16,000
B. $12,500
C. $14,500
D. $1,500
E. None of these

40. A new truck costing $50,000 with a residual value of $4,000 has an estimated useful life of five years. Using the declining-balance method at twice the straight-line rate, the depreciation expense in year 2 is: 
A. $20,000
B. $12,000
C. $18,000
D. $7,200
E. None of these

41. A truck costs $8,000 with a residual value of $1,000. The truck is expected to have a useful life of 70,000 miles. Assuming the truck is driven 15,000 miles the first year, the depreciation expense would be: 
A. $1,714
B. $1,500
C. $1,174
D. $1,505
E. None of these

42. A new piece of equipment costs $18,000 with a residual value of $600 and an estimated useful life of five years. Assuming twice the straight-line rate, the book value at the end of year 2 using the declining-balance method is: 
A. $7,200
B. $6,480
C. $11,520
D. $18,000
E. None of these

43. A truck costs $9,200 with a residual value of $1,000. It is estimated that the useful life of the truck is four years. The amount of depreciation expense in year 2 using the declining-balance method at twice the straight-line rate is: 
A. $2,300
B. $4,600
C. $3,200
D. $6,400
E. None of these

44. A truck costs $35,000 with a residual value of $2,000. Its service life is five years. Using the declining-balance method at twice the straight-line rate, the book value at the end of year 2 is: 
A. $35,000
B. $22,000
C. $12,600
D. $33,000
E. None of these

45. A new truck costing $60,000 with a residual value of $6,000 has an estimated useful life of five years. Using the declining-balance method at twice the straight-line rate, the depreciation expense in year 2 is: 
A. $24,000
B. $14,000
C. $14,400
D. $2,400
E. None of these

46. What is the depreciation expense for the first year straight-line method using the following?

Cost of car $26,000

Residual value $6,000

Life 5 years

A. $4,400

B. $5,200

C. $4,000

D. $6,000

E. None of these

47. What is the depreciation expense for the second year (straight-line method) using the following?

Cost of equipment $14,000

Residual value $500

Life 4 years

A. $14,500

B. $13,500

C. $3,375

D. $3,275

E. None of these

48. Federal Express bought material handling equipment for its hub operations that cost $180,000. Using the MACRS, what is the depreciation expense in year 3 (using a five-year class)?

A. $15,360

B. $40,000

C. $43,560

D. $34,560

E. None of these

49. Roche Pharma provides company cars for its salespeople that cost an average of $25,000. Using the class recovery system of five years, what is the depreciation expense in year 2 of the MACRS?

A. $8,000

B. $25,000

C. $17,000

D. $5,000

E. None of these

50. Using the straight-line method, what is the depreciation expense for a computer that cost $4,500, has a residual value of $700, and has a life of four years?

A. $1,125

B. $950

C. $1,300

D. $1,950

E. None of these

Short Answer Questions
 

51. 1. MACRS
2. Accumulated depreciation
3. Book value
4. Declining-balance method
5. Depreciation
6. Depreciation schedule
7. Residual value
8. Straight-line method
9. Straight-line rate
10. Trade-in
11. Units-of-production method
12. Useful life
A. An allocation of the cost of an asset
B. Even amount of depreciation expense each year
C. A table showing depreciation allocation
D. Result of Tax Reform Act of 1986
E. Depreciation based on usage
F. Estimated life of asset
G. Estimated value after AFIC depreciation taken
H. Salvage value
I. Depreciation that has been built up
J. 1 divided by number of years of expected life
K. Residual value not deducted in calculation
L. Cost minus accumulated depreciation 

52. Complete the following (use the straight-line method):
Auto: $40,000
Residual: $4,000
Estimated life: 5 years
  
A. ______________
B. ______________
C. ______________
D. ______________
E. ______________
F. ______________
G. ______________
H. ______________
I. _______________
J. _______________
K. ______________
L. _______________ 

53. Using the declining-balance method, complete the table as shown (twice the straight-line rate):
Auto $29,000
5 years
Residual $2,000
  
A. ________________
B. ________________
C. ________________
D. ________________
E. ________________
F. ________________
G. ________________
H. ________________
I. _________________
J. _________________
K. ________________
L. _________________
M. ________________
N. _________________
O. _________________
P. _________________
Q. _________________
R. _________________ 

54. Complete:
   

55. Johnson Company bought a light general purpose truck for $20,000. Calculate the yearly depreciation using MACRS for the first three years. 

56. Adjax bought a machine for $86,000. Its estimated life is 10 years with a residual value of $6,000. Using the straight-line method, what is the book value of the machine at the end of year 2? 

57. A truck costing $25,000 with a residual value of $5,000 was purchased by Rim Corporation. The truck's estimated life is 10 years. At the end of year 2 what is the book value using the declining-balance method? Assume a depreciation rate of twice the straight-line rate. 

58. Joe Wong, owner of Cookie Palace, is discussing with his accountant which method of depreciation would be best for his new delivery truck. The cost of the truck is $20,000 with an estimated life of four years. The residual value of the truck is $2,500. Prepare a depreciation schedule using the declining-balance method at twice the straight-line rate. 

59. Using MACRS 7-year class, what is depreciation in year 2 on furniture costing $12,000? 

60. Young Corporation bought a car with an estimated life of five years for $25,000. The residual value of the car is $5,000. After three years, the car was sold for $11,000. What was the difference between book value and selling price if Young used the straight-line method of depreciation? 

61. Using the declining-balance method, complete the table as shown (twice the straight-line rate):
Auto: $26,000
Estimated life: 10 years
Residual value: $600
   

62. Using the declining-balance method, complete the table as shown (twice the straight-line rate):
Auto: $30,000
Estimated life: 5 years
Residual value: $800
   

63.    

64.    

65.    

66.    

67. Apple Co. bought a car with an estimated life of five years for $12,000. The residual value of the car is $2,000. What will be the amount of depreciation expense each year using the straight-line method? If the car was bought on April 3, what would be the depreciation for the first year? 

68. Jay Corp. bought a machine for $15,000. The machine is expected to produce 10,000 units. The machine has a residual value of $5,000. Assuming the machine produces 400 units during year 1, what should the depreciation expense be? 

69. Martha Run buys a new duplicating machine for $20,000 with a residual value of $2,000. Its estimated life is five years. Calculate the book value at the end of year 1, assuming twice the straight-line rate. 

70. John Morse Corporation buys a van for $16,000. The estimated life of the van is four years. The residual value of the van is $4,000. After two years, the van is sold for $8,000. What was the difference between the book value and the amount received from selling the van if John used the straight-line method of depreciation? 

71. Bob bought a new delivery truck for his drug store for $30,000. The residual value is $3,000 with an expected life of five years. Assuming twice the straight-line rate, calculate the book value at the end of year 2 for the declining-balance method. 

72. Karen Knoll Co. bought a machine that cost $8,000. The residual value is $1,000, and the machine life is estimated at four years. Can you prepare a depreciation schedule assuming twice the straight-line rate? Karen uses the declining-balance method. 

73. Bill Murray bought fixtures (seven-year class) for $13,000. Using MACRS, what is the depreciation expense in year 2? 

74. The Life Sciences Division purchased new equipment for manufacturing products. The cost of the new machinery was $160,000. Using a five-year class, what is the expense in year 3 of the MACRS?

75. Using a straight-line depreciation schedule, at what amount is the company depreciating its equipment if the cost of the equipment is $45,000 and it has a residual value of $5,000 and a useful life of four years?

76. If Boeing depreciates its equipment that cost $120,000 over six years using a straight-line depreciation schedule, at what rate is it reducing its value each year, assuming there is no residual value?

77. Tom purchased a condo in Mississippi for rental property at a cost of $106,600. Using the class recovery period for assets, how many years will he be able to depreciate the property and what is the amount each year?

78. Hank bought a four-family residence for rental property. Hank put 20% down on the $300,000 rental unit. How much will he be able to depreciate using the class recovery period for residential rental property each year?