Characteristics Of Straight-line Depreciation F7 Quiz

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Characteristics Of Straight-line Depreciation F7 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 method. Take the test below and see how well you understand the characteristics of depreciation.


Questions and Answers
  • 1. 
    When a depreciable asset is sold for exactly its book value, the company:
    • A. 

      Will remove the cost of the asset and its accumulated depreciation from the accounting records

    • B. 

      Will not recognize any gain or loss

    • C. 

      Answers a and b are both correct.

    • D. 

      Will make no adjustment on the books because the transaction cancels itself out

  • 2. 
    One of the main characteristics of straight-line depreciation is:
    • A. 

      More depreciation is taken in the early years of an asset’s life than in its later years

    • B. 

      The complexity of the calculations

    • C. 

      Constant depreciation expense each year

    • D. 

      Difficulty in estimating residual value

  • 3. 
    • A. 

      $11,600 gain

    • B. 

      $2,000 gain

    • C. 

      $8,400 gain

    • D. 

      No gain or loss

  • 4. 
    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:
    • A. 

      $4,000 gain

    • B. 

      $4,000 loss

    • C. 

      $1,000 gain

    • D. 

      $1,000 loss

  • 5. 
    What criterion is used to choose between the straight-line and accelerated depreciation methods?
    • A. 

      Accelerated depreciation should be used for assets that produce more revenue in the early years and a lesser amount in the later years of the asset’s life.

    • B. 

      The method chosen can be based on the anticipated effect on the financial statements during the asset’s useful life.

    • C. 

      Straight-line depreciation should be used for assets that produce the same amount of revenue each period.

    • D. 

      All of these answers are correct.

  • 6. 
    The method of depreciation in which the expense is calculated using book value and a set percentage rate is:
    • A. 

      Straight-line

    • B. 

      Double-declining balance

    • C. 

      There is no depreciation method in which this situation occurs.

    • D. 

      Units of production

  • 7. 
    When a depreciable asset is sold for exactly its book value:
    • A. 

      The sale will affect the balance sheet, but not the income statement

    • B. 

      The sale will not affect any of the financial statements

    • C. 

      The sale will affect the income statement, but not the balance sheet

    • D. 

      None of these answers is correct

  • 8. 
    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:
    • A. 

      Less

    • B. 

      Depends on life

    • C. 

      Greater

    • D. 

      The same

  • 9. 
    Disposing of depreciable assets:
    • A. 

      May only occur when the asset is sold for its estimated residual value

    • B. 

      Is not considered the company’s major ongoing activity

    • C. 

      Is not considered a peripheral activity

    • D. 

      Answers a and b are both correct.

  • 10. 
    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?
    • A. 

      None of these answers is correct.

    • B. 

      $4,000

    • C. 

      $16,000

    • D. 

      $12,000

  • 11. 
    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?
    • A. 

      $14,400

    • B. 

      $18,000

    • C. 

      $19,200

    • D. 

      $7,200

  • 12. 
    Which statement regarding the useful life and residual value of assets is correct?
    • A. 

      A company must sell an asset at the end of its useful life for its estimated residual value.

    • B. 

      A company cannot use an asset past its estimated useful life.

    • C. 

      The actual and estimated useful life and residual value of an asset may greatly differ.

    • D. 

      A company cannot sell an asset until its estimated useful life has ended.

  • 13. 
    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:
    • A. 

      $200 gain

    • B. 

      $200 loss

    • C. 

      $1,200 gain

    • D. 

      $1,200 loss

  • 14. 
    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.
    • A. 

      Revenue

    • B. 

      Gain

    • C. 

      Expense

    • D. 

      Loss

  • 15. 
    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:
    • A. 

      $4,000 gain

    • B. 

      $4,000 loss

    • C. 

      $5,000 loss

    • D. 

      $5,000 gain

  • 16. 
    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?
    • A. 

      Net income in each year of the asset’s life

    • B. 

      Depreciation expense in each year of the asset’s life

    • C. 

      Accumulated depreciation in each year of the asset’s life

    • D. 

      The total accumulated depreciation for the asset

  • 17. 
    According to the FASB, cash inflows from peripheral or incidental activities are called:
    • A. 

      Earnings

    • B. 

      Elements of income

    • C. 

      Gains

    • D. 

      Revenues

  • 18. 
    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:
    • A. 

      Net income

    • B. 

      Depreciable base

    • C. 

      Residual value

    • D. 

      Gain or loss

  • 19. 
    An example of a long-lived asset is:
    • A. 

      Machinery or equipment

    • B. 

      A building used in a business

    • C. 

      Land

    • D. 

      All of these answers are correct.

  • 20. 
    When a depreciable asset is sold for less than its book value, there is a:
    • A. 

      Either a gain or a loss

    • B. 

      Loss

    • C. 

      Gain

    • D. 

      Revenue

  • 21. 
    When a depreciable asset is sold for more than its book value, the company must at least:
    • A. 

      Record the loss on the sale in the general ledger

    • B. 

      Record the loss on the sale in the general journal

    • C. 

      Remove the cost of the asset and its accumulated depreciation from the accounting records

    • D. 

      Record the selling price of the asset as a sale in the general ledger

  • 22. 
    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 __________.
    • A. 

      $3,000 gain, $ 9,440 gain

    • B. 

      $6,000 gain, $ 9,440 gain

    • C. 

      $3,000 gain, $13,360 gain

    • D. 

      $6,000 gain, $13,360 gain

  • 23. 
    The units-of-production method is similar to the straight-line method of depreciation except that:
    • A. 

      It is an accelerated method of depreciation

    • B. 

      It uses production activity as the basis of allocating depreciation expense

    • C. 

      It uses months of operation as the basis of allocating depreciation expense

    • D. 

      It is only used for income tax purposes

  • 24. 
    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?
    • A. 

      $700

    • B. 

      $967

    • C. 

      $400

    • D. 

      $833

  • 25. 
    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:
    • A. 

      $600

    • B. 

      $44

    • C. 

      $2,400

    • D. 

      $440