Ch.11

40 Questions | By Jlyons08 | Updated: Mar 21, 2022 | Attempts: 436

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1.

The following is true of depreciation accounting
- A.
  
  It is not a matter of valuation
- B.
  
  It is part of the matching of revenues and expenses
- C.
  
  It retains funds by reducing income taxes and dividends
- D.
  
  All of these
2.

Which of the following principles best describes the conceptual rationale for the methods of matching depreciation expense with revenues?
- A.
  
  Associating cause and effect
- B.
  
  Systematic and rational allocation
- C.
  
  Immediate recognition
- D.
  
  Partial recognition
3.

Depreciation accounting
- A.
  
  Provides funds
- B.
  
  Funds replacements
- C.
  
  Retains funds
- D.
  
  All of these
4.

Which of the following most accurately reflects the concept of depreciation as used in accounting?
- A.
  
  The process of charging the decline in value of an economic resource to income in the period in which the benefit occurred
- B.
  
  The process of allocating the cost of tangible assets to expense in a systematic and rational manner to those periods expected to benefit from the use of the asset
- C.
  
  A method of allocating asset cost to an expense account in a manner which closely matches the physical deterioration of the tangible asset involved
- D.
  
  An accounting concept that allocates the portion of an asset used up during the year to the contra asset account for the purpose of properly recording the fair market value of tangible assets.
5.

The major difference between the service life of an asset and its physical life is that
- A.
  
  Service life refers to the time an asset will be used by a company and physical life refers to how long the asset will last.
- B.
  
  Physical life is the life of an asset without consideration of salvage value and service life requires the use of salvage value.
- C.
  
  Physical life is always longer than service life.
- D.
  
  Service life refers to the length of time an asset is of use to its original owner, while physical life refers to how long the asset will be used by all owners.
6.

The term "depreciable base," or "depreciation base," as it is used in accounting, refers to
- A.
  
  The total amount to be charged (debited) to expense over an asset's useful life
- B.
  
  The cost of the asset less the related depreciation recorded to date
- C.
  
  The estimated market value of the asset at the end of its useful life
- D.
  
  The acquisition cost of the asset
7.

Economic factors that shorten the service life of an asset include
- A.
  
  Obsolescence
- B.
  
  Supersession.
- C.
  
  Inadequacy.
- D.
  
  All of these
8.

Which of the following is not one of the basic questions that must be answered before the amount of depreciation charge can be computed?
- A.
  
  What is the depreciation base to use for the asset?
- B.
  
  What is the asset's useful life?
- C.
  
  What method of cost apportionment is best for this asset?
- D.
  
  What product or service is the asset related to?
9.

Which of the following is a realistic assumption of the straight-line method of depreciation?
- A.
  
  The asset's economic usefulness is the same each year
- B.
  
  The repair and maintenance expense is essentially the same each period
- C.
  
  The rate of return analysis is enhanced using the straight-line method
- D.
  
  Depreciation is a function of time rather than a function of usage
10.

The activity method of depreciation
- A.
  
  Is a variable charge approach
- B.
  
  Assumes that depreciation is a function of the passage of time
- C.
  
  Conceptually associates cost in terms of input measures.
- D.
  
  All of these
11.

For income statement purposes, depreciation is a variable expense if the depreciation method used is
- A.
  
  Units-of-production
- B.
  
  Straight-line.
- C.
  
  Sum-of-the-years'-digits
- D.
  
  Declining-balance.
12.

If an industrial firm uses the units-of-production method for computing depreciation on its only plant asset, factory machinery, the credit to accumulated depreciation from period to period during the life of the firm will
- A.
  
  Be constant
- B.
  
  Vary with unit sales
- C.
  
  Vary with sales revenue
- D.
  
  Vary with production
13.

Use of the double-declining balance method
- A.
  
  Results in a decreasing charge to depreciation expense
- B.
  
  Means salvage value is not deducted in computing the depreciation base
- C.
  
  Means the book value should not be reduced below salvage value
- D.
  
  All of these.
14.

Use of the sum-of-the-years'-digits method
- A.
  
  Results in salvage value being ignored.
- B.
  
  Means the denominator is the years remaining at the beginning of the year.
- C.
  
  Means the book value should not be reduced below salvage value.
- D.
  
  All of these
15.

A graph is set up with "yearly depreciation expense" on the vertical axis and "time" on the horizontal axis. Assuming linear relationships, how would the graphs for straight-line and sum-of-the-years'-digits depreciation, respectively, be drawn?
- A.
  
  Vertically and sloping down to the right
- B.
  
  Vertically and sloping up to the right
- C.
  
  Horizontally and sloping down to the right
- D.
  
  Horizontally and sloping up to the right
16.

A principal objection to the straight-line method of depreciation is that it
- A.
  
  Provides for the declining productivity of an aging asset.
- B.
  
  Ignores variations in the rate of asset use
- C.
  
  Tends to result in a constant rate of return on a diminishing investment base
- D.
  
  Gives smaller periodic write-offs than decreasing charge methods.
17.

Each year a company has been investing an increasingly greater amount in machinery. Since there is a large number of small items with relatively similar useful lives, the company has been applying straight-line depreciation at a uniform rate to the machinery as a group. The ratio of this group's total accumulated depreciation to the total cost of the machinery has been steadily increasing and now stands at .75 to 1.00. The most likely explanation for this increasing ratio is the
- A.
  
  Company should have been using one of the accelerated methods of depreciation
- B.
  
  Estimated average life of the machinery is less than the actual average useful life
- C.
  
  Estimated average life of the machinery is greater than the actual average useful life
- D.
  
  Company has been retiring fully depreciated machinery that should have remained in service.
18.

For the composite method, the composite
- A.
  
  Rate is the total cost divided by the total annual depreciation
- B.
  
  Rate is the total annual depreciation divided by the total depreciable cost
- C.
  
  Life is the total cost divided by the total annual depreciation
- D.
  
  Life is the total depreciable cost divided by the total annual depreciation
19.

Watkins Truck Rental uses the group depreciation method for its fleet of trucks. When it retires one of its trucks and receives cash from a salvage company, the carrying value of property, plant, and equipment will be decreased by the
- A.
  
  Original cost of the truck
- B.
  
  Original cost of the truck less the cash proceeds.
- C.
  
  Cash proceeds received
- D.
  
  Cash proceeds received and original cost of the truck
20.

Composite or group depreciation is a depreciation system whereby
- A.
  
  The years of useful life of the various assets in the group are added together and the total divided by the number of items.
- B.
  
  The cost of individual units within an asset group is charged to expense in the year a unit is retired from service
- C.
  
  A straight-line rate is computed by dividing the total of the annual depreciation expense for all assets in the group by the total cost of the assets
- D.
  
  The original cost of all items in a given group or class of assets is retained in the asset account and the cost of replacements is charged to expense when they are acquired.
21.

When depreciation is computed for partial periods under a decreasing charge depreciation method, it is necessary to
- A.
  
  Charge a full year's depreciation to the year of acquisition
- B.
  
  Determine depreciation expense for the full year and then prorate the expense between the two periods involved.
- C.
  
  Use the straight-line method for the year in which the asset is sold or otherwise disposed of.
- D.
  
  Use a salvage value equal to the first year's partial depreciation charge
22.

Depreciation is normally computed on the basis of the nearest
- A.
  
  Full month and to the nearest cent
- B.
  
  Full month and to the nearest dollar
- C.
  
  Day and to the nearest cent.
- D.
  
  Day and to the nearest dollar
23.

Myers Company acquired machinery on January 1, 2005 which it depreciated under the straight-line method with an estimated life of fifteen years and no salvage value. On January 1, 2010, Myers estimated that the remaining life of this machinery was six years with no salvage value. How should this change be accounted for by Myers?
- A.
  
  As a prior period adjustment
- B.
  
  As the cumulative effect of a change in accounting principle in 2010
- C.
  
  By setting future annual depreciation equal to one-sixth of the book value on January 1, 2010
- D.
  
  By continuing to depreciate the machinery over the original fifteen year life
24.

A change in estimate should
- A.
  
  Result in restatement of prior period statements.
- B.
  
  Be handled in current and future periods
- C.
  
  Be handled in future periods only
- D.
  
  Be handled retroactively
25.

Lynch Printing Company determines that a printing press used in its operations has suffered a permanent impairment in value because of technological changes. An entry to record the impairment should
- A.
  
  Recognize an extraordinary loss for the period
- B.
  
  Include a credit to the equipment accumulated depreciation account
- C.
  
  Include a credit to the equipment account.
- D.
  
  Not be made if the equipment is still being used