# Characteristics Of Straight-line Depreciation F7 Quiz

25 Questions | Total Attempts: 305  Settings  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.

Related Topics
• 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.
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:
• 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