Depreciation Paper 1


A new machine has an initial cost of $300,000, an estimated useful life of 2,000 hours of use over a 3-year period, and an estimated residual value of $70,000. Usage rates are estimated as 500 hours in the first year, 700 hours in the second year, and 800 hours in the third year. Depreciation expense in Year 2 under the units-of-production method of depreciation will be


A company uses straight-line depre accelerated depreciation for tax purposes. Which of the following account balances would be lower in the financial statements used for tax purposes than it would be in the general purpose financial statements?


All of the following would be included as part of the cost of a depreciable asset except the


Basic Brick, Inc., purchased manufacturing equipment for $100,000, with an estimated useful life of 10 years and a salvage value of $15,000. The second year’s depreciation for this equipment using the double-declining balance method is


Equipment bought by Wilson Steam Generating Company 3 years ago was charged to equipment expense in error. The cost of the equipment was $100,000, with no expected salvage value and a 10-year estimated life. Wilson uses the straight-line depreciation method on similar equipment. The error was discovered at the end of Year 3 prior to the issuance of Wilson’s financial statements. After correction of the error, the correct carrying value of the equipment will be


Lakeside Electric purchased a truck for $38,600 to transport equipment to various job sites. For this purpose, storage bins were welded to the truck bed at a cost of $1,700. Doug Lombardi, controller of Lakeside, estimates the useful life of the truck to be 5 years and the residual value to be $1,000. Using the double-declining balance method, the depreciation expense on the truck for its second year of use is


Albright Company uses the sum-of-the-years’-digits (SYD) method of depreciation. On January 1, the company purchased a machine for $50,000. It had an estimated life of 5 years and no residual value. Depreciation for the first year would be


When a fixed plant asset with a 5-year estimated useful life is sold during the second year, how would the use of an accelerated depreciation method instead of the straight-line method affect the gain or loss on the sale of the fixed plant asset? Gain.. Loss


Which one of the following methods of depreciation will result in the lowest reported net income in the early life of a depreciable asset?


Silken, Inc., a distributor of silk goods, is in its first year of operation. The company has purchased ten computers at $3,500 each with an estimated life of 6 years; five desks at $500 each with an estimated life of 10 years; and two word processors at $300 each, with an estimated life of 4 years. No residual value is anticipated for any of these assets. Silken wants to adopt a depreciation method that will be easy to use and reflect an appropriate depreciation expense for the business each accounting period. The most appropriate method would be


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