Characteristics Of Straight-line Depreciation F7 Quiz

Reviewed by Editorial Team
The ProProfs editorial team is comprised of experienced subject matter experts. They've collectively created over 10,000 quizzes and lessons, serving over 100 million users. Our team includes in-house content moderators and subject matter experts, as well as a global network of rigorously trained contributors. All adhere to our comprehensive editorial guidelines, ensuring the delivery of high-quality content.
Learn about Our Editorial Process
| By Amphib2007
A
Amphib2007
Community Contributor
Quizzes Created: 17 | Total Attempts: 18,478
| Attempts: 417 | Questions: 25
Please wait...
Question 1 / 25
0 %
0/100
Score 0/100
1. When a depreciable asset is sold for less than its book value, there is a:

Explanation

When a depreciable asset is sold for less than its book value, there is a loss. This means that the asset is being sold for less than its recorded value on the company's books. This loss occurs because the asset has decreased in value over time due to depreciation. Selling the asset for less than its book value results in a financial loss for the company.

Submit
Please wait...
About This Quiz
Characteristics Of Straight-line Depreciation F7 Quiz - Quiz

When it comes to long term assets such as machines their ability to perform like they did when they were new depreciation is a factor that most companies need to keep an eye on. This cost is covered in the income statement, and it is commonly measured through the straight-line... see moremethod. Take the test below and see how well you understand the characteristics of depreciation. see less

Personalize your quiz and earn a certificate with your name on it!
2. Tran-Can Products has equipment that it purchased for $5,000 three years ago. If the current accumulated depreciation is $4,000 and Tran-Can sells the equipment for $1,200 Tran-Can will realize a:

Explanation

Tran-Can Products will realize a $200 gain if they sell the equipment for $1,200. This can be determined by subtracting the current accumulated depreciation of $4,000 from the original purchase price of $5,000, resulting in a net book value of $1,000. Since the selling price of $1,200 is higher than the net book value, Tran-Can will realize a gain of $200.

Submit
3. Copycat Productions buys a new copier at a cost of $3,000. It is estimated that the copier will produce 60,000 copies during its useful life. Copycat believes it can sell the copier for $600 at the end of its useful life. Copycat will use the units-of-production method to depreciate the copier. During January, Copycat makes 1,100 copies. Copycat’s January depreciation expense for the copier is:

Explanation

The units-of-production method calculates depreciation based on the number of units produced or used. In this case, the copier is estimated to produce 60,000 copies over its useful life. In January, Copycat made 1,100 copies. To calculate the depreciation expense for January, we divide the cost of the copier ($3,000) by the estimated total number of copies (60,000) to get the cost per copy ($0.05). Then, we multiply the cost per copy by the number of copies made in January (1,100) to get the depreciation expense for January, which is $55. However, since Copycat believes it can sell the copier for $600 at the end of its useful life, we need to subtract the expected residual value from the depreciation expense. Therefore, the correct answer is $44.

Submit
4. The method of depreciation in which the expense is calculated using book value and a set percentage rate is:

Explanation

The double-declining balance method is a type of depreciation method in which the expense is calculated using the book value of the asset and a set percentage rate. This method is commonly used when an asset is expected to depreciate more rapidly in its early years and then slow down over time. It allows for a higher depreciation expense in the early years of an asset's life and gradually reduces the expense as the asset gets older. This method is useful for assets that have a higher rate of obsolescence or wear and tear in the initial years.

Submit
5. The following information is available for Snowstorm Transit Company: ·         A machine is purchased on January 1, 2005, for $40,000. ·         The machine’s residual value on January 1, 2005, is estimated to be $5,000 ·         The machine’s estimated useful life is five years               Using the information above, if Snowstorm Transit has been using the straight-line depreciation method and sells the asset on January 1, 2007, for $30,000, it will have a:

Explanation

When using the straight-line depreciation method, the annual depreciation expense is calculated by subtracting the residual value from the initial cost and dividing it by the useful life of the asset. In this case, the annual depreciation expense would be ($40,000 - $5,000) / 5 = $7,000.

Since the asset was sold on January 1, 2007, after two years of use, the accumulated depreciation would be 2 * $7,000 = $14,000.

The book value of the asset at the time of sale would be the initial cost minus the accumulated depreciation, which is $40,000 - $14,000 = $26,000.

Since the asset was sold for $30,000, there is a gain of $30,000 - $26,000 = $4,000. Therefore, the correct answer is $4,000 gain.

Submit
6. One of the main characteristics of straight-line depreciation is:

Explanation

Straight-line depreciation is a method of allocating the cost of an asset evenly over its useful life. This means that the depreciation expense remains constant each year. Unlike other methods, such as accelerated depreciation, straight-line depreciation does not front-load the depreciation expense in the early years of the asset's life. Instead, it spreads the expense evenly over the asset's useful life. This makes it easier to calculate and provides a consistent and predictable depreciation expense each year. The other options mentioned, such as complexity of calculations and difficulty in estimating residual value, do not apply to straight-line depreciation.

Submit
7. The following information is available for Snowstorm Transit Company: ·         A machine is purchased on January 1, 2005, for $40,000 ·         The machine’s residual value on January 1, 2005, is estimated to be $5,000 ·         The machine’s estimated useful life is five years               Using the information above, if Snowstorm Transit has been using the double-declining-balance depreciation method and sells the asset on January 1, 2007, for $26,000, it will have a:

Explanation

The double-declining-balance depreciation method calculates a higher depreciation expense in the early years of an asset's life and decreases it over time. To calculate the gain or loss on the sale of the asset, we need to subtract the accumulated depreciation from the asset's cost. In this case, the machine's cost is $40,000, and the estimated accumulated depreciation after two years is $24,000 ($40,000 - $5,000 x 2). Therefore, the book value of the machine is $16,000 ($40,000 - $24,000). Since the machine is sold for $26,000, there is a gain of $10,000 ($26,000 - $16,000). However, the question asks for the gain, not the book value, so we need to add back the accumulated depreciation of $1,600 ($24,000 - $16,000). Therefore, the gain is $11,600 ($10,000 + $1,600).

Submit
8. The following information is available for Snowstorm Transit Company: ·         A machine is purchased on January 1, 2005, for $40,000 ·         The machine’s residual value on January 1, 2005, is estimated to be $5,000 ·         The machine’s estimated useful life is five years                         Using the information above, if Snowstorm Transit is using the straight-line depreciation method and sells the asset on January 1, 2008, for $15,000, it will have a:

Explanation

The machine was purchased for $40,000 and its residual value is estimated to be $5,000. The estimated useful life of the machine is five years. Using the straight-line depreciation method, the annual depreciation expense would be ($40,000 - $5,000) / 5 = $7,000. Since the machine was sold on January 1, 2008, after three years of use, the accumulated depreciation would be 3 x $7,000 = $21,000. The book value of the machine at the time of sale would be $40,000 - $21,000 = $19,000. Since the machine was sold for $15,000, there is a loss of $19,000 - $15,000 = $4,000. Therefore, the correct answer is $4,000 loss.

Submit
9. A firm that uses accelerated depreciation and disposes of an asset early in its useful life will be more likely to show a(n) __________ than a firm using the straight-line method that disposes of the same asset at the same point in time.

Explanation

A firm that uses accelerated depreciation and disposes of an asset early in its useful life will be more likely to show a gain than a firm using the straight-line method that disposes of the same asset at the same point in time. This is because accelerated depreciation allows for larger depreciation expenses in the early years of an asset's life, resulting in lower taxable income. When the firm disposes of the asset early, the proceeds from the sale may exceed the remaining book value of the asset, resulting in a gain. On the other hand, a firm using the straight-line method would have lower depreciation expenses throughout the asset's life, resulting in higher taxable income and potentially a loss if the proceeds from the sale are less than the remaining book value.

Submit
10. The units-of-production method is similar to the straight-line method of depreciation except that:

Explanation

The correct answer is "it uses production activity as the basis of allocating depreciation expense." The units-of-production method of depreciation calculates depreciation expense based on the actual usage or production activity of the asset. This method is commonly used for assets that are subject to wear and tear based on their usage, such as manufacturing equipment or vehicles. It allocates a higher amount of depreciation expense in periods of higher production activity and a lower amount in periods of lower production activity. This method provides a more accurate reflection of the asset's usage and wear and tear over its useful life.

Submit
11. Which statement regarding the useful life and residual value of assets is correct?

Explanation

The correct answer is that the actual and estimated useful life and residual value of an asset may greatly differ. This means that the initial estimate of an asset's useful life and residual value may not accurately reflect the actual lifespan and value of the asset. Factors such as wear and tear, technological advancements, and market conditions can all affect the actual useful life and residual value of an asset. Therefore, it is important for companies to regularly reassess and update their estimates to ensure accurate financial reporting.

Submit
12. According to the FASB, cash inflows from peripheral or incidental activities are called:

Explanation

According to the FASB, cash inflows from peripheral or incidental activities are called gains. Gains refer to the positive financial outcomes resulting from activities that are not central to the main operations of a business. These can include one-time or non-recurring events such as the sale of assets, investments, or other non-operating activities. Gains are distinct from revenues, which are the cash inflows generated from the primary operations of a business.

Submit
13. An example of a long-lived asset is:

Explanation

The correct answer is "All of these answers are correct." This is because all three options - machinery or equipment, a building used in a business, and land - are examples of long-lived assets. Long-lived assets are assets that are expected to provide economic benefits for a period longer than one year. Machinery or equipment, buildings, and land are all durable assets that are used in business operations and have a useful life of more than one year. Therefore, all of these options are correct examples of long-lived assets.

Submit
14. When a depreciable asset is sold for exactly its book value, the company:

Explanation

When a depreciable asset is sold for exactly its book value, the company will remove the cost of the asset and its accumulated depreciation from the accounting records. This is because the book value represents the net value of the asset after accounting for depreciation. Additionally, the company will not recognize any gain or loss because the selling price is equal to the book value. Therefore, both answers a and b are correct. The company does not need to make any adjustment on the books because the transaction cancels itself out.

Submit
15. When a depreciable asset is sold for more than its book value, the company must at least:

Explanation

When a depreciable asset is sold for more than its book value, the company must remove the cost of the asset and its accumulated depreciation from the accounting records. This is because the book value of an asset represents its original cost minus its accumulated depreciation. When the asset is sold for more than its book value, it means that the company has made a profit on the sale. Therefore, the cost of the asset and its accumulated depreciation should be removed from the accounting records to reflect the gain on the sale accurately.

Submit
16. When a depreciable asset is sold for exactly its book value:

Explanation

When a depreciable asset is sold for exactly its book value, the sale will affect the balance sheet, but not the income statement. This is because the book value represents the carrying value of the asset on the balance sheet, and when the asset is sold for the same amount, there is no gain or loss to be recognized on the income statement. The sale will only result in a change in the asset's value on the balance sheet, such as a decrease in the asset's value and a decrease in the corresponding accumulated depreciation.

Submit
17. What criterion is used to choose between the straight-line and accelerated depreciation methods?

Explanation

The criterion used to choose between the straight-line and accelerated depreciation methods is based on the anticipated effect on the financial statements during the asset's useful life. This means that the method chosen should align with the revenue generated by the asset over time. If the asset is expected to produce more revenue in the early years and a lesser amount in the later years, accelerated depreciation should be used. On the other hand, if the asset is expected to generate the same amount of revenue each period, straight-line depreciation is more appropriate. Therefore, all of the given answers are correct as they explain different aspects of the criterion used for choosing the depreciation method.

Submit
18. A company has a truck that it purchased for $16,000. The truck has an estimated useful life of four years and an estimated residual value of $4,000. What is the depreciable base of the truck?

Explanation

The depreciable base of the truck is the initial cost of the truck minus its estimated residual value. In this case, the initial cost of the truck is $16,000 and the estimated residual value is $4,000. Subtracting the residual value from the initial cost gives us a depreciable base of $12,000.

Submit
19. The following information is available for Snowstorm Transit Company: ·         A machine is purchased on January 1, 2005, for $40,000 ·         The machine’s residual value on January 1, 2005, is estimated to be $5,000 ·         The machine’s estimated useful life is five years               If Snowstorm Transit has been using the straight-line depreciation method and sells the asset for $22,000 on January 1, 2008, it would have a __________, but if it had used double-declining-balance method it would have a __________.

Explanation

If Snowstorm Transit Company had been using the straight-line depreciation method and sold the asset for $22,000 on January 1, 2008, it would have a $3,000 gain. This is because the book value of the asset at that time would be $19,000 ($40,000 - $5,000 - $16,000 depreciation expense for 3 years), and since it sold it for $22,000, there is a gain of $3,000.If Snowstorm Transit Company had used the double-declining-balance method, the depreciation expense for the first year would be $16,000 ($40,000 x 2/5), and for the second year it would be $9,600 ($24,000 x 2/5). Therefore, the book value at the beginning of 2008 would be $14,400 ($40,000 - $16,000 - $9,600), and since it sold it for $22,000, there is a gain of $13,600.

Submit
20. Disposing of depreciable assets:

Explanation

Disposing of depreciable assets is not considered the company's major ongoing activity because it is a one-time event that occurs when the asset is sold. The company's major ongoing activity is typically related to its core business operations, such as producing and selling goods or services. Disposing of assets is more of a secondary activity that occurs when the company no longer needs the asset or wants to replace it with a newer one. Therefore, the correct answer is that disposing of depreciable assets is not considered the company's major ongoing activity.

Submit
21. Martha's Hideaway Tours has just acquired a new tour bus. The bus cost $45,000 to purchase, but then Martha had to spend an additional $3,000 to get it painted with the Hideaway logo and ready to use. If Martha plans to use the bus for five years, and then hopes to sell it for $12,000, how much depreciation will be recognized the first year under the double-declining-balance method?

Explanation

The double-declining-balance method is a depreciation method that accelerates the recognition of depreciation expenses in the early years of an asset's life. It assumes that the asset will lose a larger portion of its value in the earlier years. To calculate the depreciation expense for the first year, we need to determine the asset's depreciable base, which is the cost of the asset minus its expected salvage value. In this case, the depreciable base is $45,000 - $12,000 = $33,000. The double-declining rate is 1/5, which is 1 divided by the asset's useful life of 5 years. Therefore, the depreciation expense for the first year is $33,000 * 1/5 = $6,600. However, the double-declining-balance method allows for the recognition of depreciation expenses up to twice the straight-line depreciation expense. Therefore, the depreciation expense for the first year is $6,600 * 2 = $13,200.

Submit
22. There are several differences in the calculation of depreciation between the straight-line and double-declining-balance methods. Which item below would not be a difference if a company were to calculate depreciation for an asset using the straight-line and double-declining-balance methods?

Explanation

The total accumulated depreciation for the asset would not be a difference if a company were to calculate depreciation using the straight-line and double-declining-balance methods. This is because both methods would result in the same total accumulated depreciation for the asset over its life. The difference lies in the distribution of depreciation expense and net income in each year of the asset's life, but the total accumulated depreciation remains the same.

Submit
23. Over the entire life of an asset, the total amount of depreciation recognized under straight-line method in relation to double-declining-balance method will be:

Explanation

The total amount of depreciation recognized under the straight-line method will be the same as the total amount recognized under the double-declining-balance method over the entire life of an asset. This is because both methods allocate the same total depreciation expense over the asset's useful life, but they do so in different proportions. The straight-line method evenly distributes the depreciation expense, while the double-declining-balance method front-loads the depreciation in the earlier years and gradually reduces it in later years. Despite the different timing of depreciation recognition, the total amount remains unchanged.

Submit
24. When a company sells a depreciable asset, the difference between the amount the company receives and the book value of the asset is the amount of:

Explanation

When a company sells a depreciable asset, the difference between the amount the company receives and the book value of the asset is the amount of gain or loss. This gain or loss represents the difference between the original cost of the asset and its current value at the time of sale. If the company sells the asset for more than its book value, it will result in a gain. Conversely, if the company sells the asset for less than its book value, it will result in a loss. This gain or loss is recorded in the company's financial statements and affects its overall profitability.

Submit
25. If Ruby’s Video Store purchases a new cash register for $2,500 and plans to use it for three years before disposing of it for an estimated $400, how much depreciation will Ruby’s recognize each year under the straight-line method?

Explanation

Under the straight-line method of depreciation, the depreciation expense is calculated by dividing the cost of the asset minus its estimated salvage value by the useful life of the asset. In this case, the cost of the cash register is $2,500 and the estimated salvage value is $400. The useful life is three years. Therefore, the depreciation expense per year would be ($2,500 - $400) / 3 = $2,100 / 3 = $700. Hence, the correct answer is $700.

Submit
View My Results

Quiz Review Timeline (Updated): Mar 19, 2023 +

Our quizzes are rigorously reviewed, monitored and continuously updated by our expert board to maintain accuracy, relevance, and timeliness.

  • Current Version
  • Mar 19, 2023
    Quiz Edited by
    ProProfs Editorial Team
  • Feb 19, 2011
    Quiz Created by
    Amphib2007
Cancel
  • All
    All (25)
  • Unanswered
    Unanswered ()
  • Answered
    Answered ()
When a depreciable asset is sold for less than its book ...
Tran-Can Products has equipment that it purchased for ...
Copycat Productions buys a new copier at a cost of ...
The method of depreciation in which the expense is ...
The following information is ...
One of the main characteristics of straight-line depreciation is:
The ...
The following information is ...
A firm that uses accelerated depreciation and disposes ...
The units-of-production method is similar to the ...
Which statement regarding the useful life and residual ...
According to the FASB, cash inflows from peripheral or ...
An example of a long-lived asset is:
When a depreciable asset is sold for exactly its book ...
When a depreciable asset is sold for more than its book ...
When a depreciable asset is sold for exactly its book value:
What criterion is used to choose between the ...
A company has a truck that it purchased for $16,000. The ...
The following information is ...
Disposing of depreciable assets:
Martha's Hideaway Tours has just acquired a new tour ...
There are several differences in the calculation of ...
Over the entire life of an asset, the total amount of ...
When a company sells a depreciable asset, the difference ...
If Ruby’s Video Store purchases a new cash register for ...
Alert!

Advertisement