Correct answer: (A)
All refer to the process of allocating the cost of long-term assets used in the business over future periods
2
Depreciation:
Detailed Answer
Correct answer: (B)
Could be a product cost or a period cost depending on the use of the asset.
3
Assuming an asset is used evenly over a four-year service life, which method of depreciation will always result in the largest amount of depreciation in the first year?
Detailed Answer
Correct answer: (C)
Double-declining balance
4
In the first year of an asset’s life, which of the following methods has the smallest depreciation?
Detailed Answer
Correct answer: (A)
Straight-line.
5
An asset acquired January 1, 2011, for $15,000 with an estimated 10-year life and no residual value is being depreciated in an equipment group asset account (group depreciation method) that has an average service life of eight years. The asset is sold on December 31, 2012, for $6,000. The entry to record the sale would be:
Detailed Answer
Correct answer: (D)
Debit: Cash 6k; Debit: Accumulated depreciation 9k; Credit: Equipment 15k
[Under the group depreciation method, it is assumed that the book value of a disposed item exactly equals any proceeds received, and no gain or loss is recorded.]
6
Cutter Enterprises purchased equipment for $72,000 on January 1, 2011. The equipment is expected to have a five-year life and a residual value of $6,000.
Using the straight-line method, depreciation for 2011 would be:
Cutter Enterprises purchased equipment for $72,000 on January 1, 2011. The equipment is expected to have a five-year life and a residual value of $6,000.
Using the straight-line method, the book value at December 31, 2011 would be:
Cutter Enterprises purchased equipment for $72,000 on January 1, 2011. The equipment is expected to have a five-year life and a residual value of $6,000.
Using the straight-line method, depreciation for 2012 and the equipment’s book value at December 31, 2012 would be:
Cutter Enterprises purchased equipment for $72,000 on January 1, 2011. The equipment is expected to have a five-year life and a residual value of $6,000.
Using the double-declining balance method, depreciation for 2011 and the book value at December 31, 2011 would be:
Cutter Enterprises purchased equipment for $72,000 on January 1, 2011. The equipment is expected to have a five-year life and a residual value of $6,000.
Using the double-declining balance method, depreciation for 2012 would be:
Detailed Answer
Correct answer: (C)
$17,280.
[Depreciation, 2012 = [$72,000 - ($72,000 x 40%)] x 40% = $17,280]