Chpt. 11

48 Questions | Total Attempts: 130

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Chpt. 11

Questions and Answers
  • 1. 
    When a disposal of an asset occurs, a company recognizes a gain or loss on the disposal for the difference between
    • A. 

      The book value of the asset and the consideration received

    • B. 

      The historical cost of the asset and the consideration given

    • C. 

      The historical cost of the asset and consideration received

    • D. 

      The book value of the asset and the consideration given

  • 2. 
    Depreciation is a process of 
    • A. 

      Increasing gains

    • B. 

      Asset valuation

    • C. 

      Cost allocation

    • D. 

      Increasing net income

  • 3. 
    GAAP requires disclosure of a general description of the method used in computing depreciation with respect to major classes of depreciable assets
    • A. 

      True

    • B. 

      False

  • 4. 
    The four factors that are considered in the computation of depreciation are
    • A. 

      A length of loan, useful life, salvage value, and method of cost allocation

    • B. 

      Useful life, length of loan, asset cost, and salvage

    • C. 

      Asset cost, service life, residual value, and method of cost allocation

    • D. 

      Asset cost, length of the loan, service life, and residual value

  • 5. 
    Marcus, Inc. purchased ten portable heating units for $5,000 each, with an average expected service life of four years and a residual value of $700 each.  The depreciation rate for the assets, assuming the group depreciation method is used, will be
    • A. 

      25%

    • B. 

      29%

    • C. 

      20%

    • D. 

      21.5%

  • 6. 
    The service life of an asset may be measure by all of the following except
    • A. 

      Units of input

    • B. 

      Units of time

    • C. 

      Units of output

    • D. 

      Units of activity

  • 7. 
    Which one of the following statements is not a disclosure requirement for depreciation?
    • A. 

      The accumulated depreciation for each major class of depreciable asset

    • B. 

      The useful life of each major class of depreciable asset

    • C. 

      The balances of major classes of depreciable assets

    • D. 

      A general description of the method(s) used for depreciation

  • 8. 
    Which one of the following statements is an advantage of the group and composite methods of depreciation?
    • A. 

      Record keeping is simplified

    • B. 

      Losses are not recognized in the period in which they occur

    • C. 

      Faulty estimates are concealed for long periods

    • D. 

      Gains are deferred beyond the point in which they actually occurred

  • 9. 
    Brian's Inc. purchased a piece of equipment for $30,000 with a useful life of nine years and a residual value of $6,000 on January 2, 2014.  If Brian's used the sum-of-the-years'-digit depreciation method with the half year convention, depreciation expense for 2014 was
    • A. 

      $2,666.67

    • B. 

      $3,000

    • C. 

      $3,333.33

    • D. 

      $2,400

  • 10. 
    The depreciation base is calculated as
    • A. 

      Asset Cost * Estimated Residual Value = Depreciation Base

    • B. 

      Asset Cost / Estimated Residual Value = Depreciation Base

    • C. 

      Asset Cost - Estimated Residual Value = Depreciation Base

    • D. 

      Asset Cost + Estimated Residual Value = Depreciation Base

  • 11. 
    Weatherly Corporation purchased a new production machine July 1, 2014, for $140,000.  The estimated salvage value is $10,000.  The company uses units of production depreciation and estimates the machine will produce 100,000 units during its useful life.  In 2014, the company manufactures 5,000 units after acquiring the machine.  Depreciation expense for 2014 will be
    • A. 

      $7,000

    • B. 

      $13,000

    • C. 

      $0

    • D. 

      $6,500

  • 12. 
    Which of the following statements is not true?
    • A. 

      A change in the depreciation method for currently owned assets is accounted for prospectively

    • B. 

      Correction of an error in depreciation is accounted for as a prior period adjustment

    • C. 

      A company may revise its estimate of service life and residual value as new or additional information becomres available

    • D. 

      A company may never revise its estimated depreciation, the deprecation method originally selected, or correct an error

  • 13. 
    The total amount of depreciation expense over the life of an asset is _______ under each method, the yearly amounts of depreciation expense are ________.
    • A. 

      The same, different

    • B. 

      Different, different

    • C. 

      The same, equal

    • D. 

      Different, equal

  • 14. 
    A company may dispose of PP&E by all of the following except
    • A. 

      Abandonment

    • B. 

      Purchase

    • C. 

      Sale

    • D. 

      Involuntary conversion

  • 15. 
    An impairment loss must be recognized when as asset's
    • A. 

      Present value is lower than its fair value

    • B. 

      Present value is higher than its fair value

    • C. 

      Book value is lower than its fair value

    • D. 

      Book value is higher than its fair value

  • 16. 
    PP&E must be reviewed for impairment when which one of the following events occurs?
    • A. 

      A current period operating loss occurs

    • B. 

      Investing activities produce a negative cash flow

    • C. 

      A significant change in the asset's estimated useful life occurs

    • D. 

      The cost of constructing the asset are determined to be less than the budgeted amount

  • 17. 
    Involuntary disposals of assets includes all fo the following except
    • A. 

      Flood

    • B. 

      Fire

    • C. 

      Expropriated by a governmental unit

    • D. 

      Sale at a loss

  • 18. 
    The net amount that a company expects to obtain from disposing of an asset at the end of its service life is
    • A. 

      The present value

    • B. 

      The historical cost

    • C. 

      The residual value

    • D. 

      The depreciable value

  • 19. 
    Which of the following statements is true?
    • A. 

      GAAP Requires the use of either straight-line or decline balance depreciation

    • B. 

      One objective of depreciating an asset is to provide funds for replacement

    • C. 

      Straight-line results in a decreasing amount of depreciation on total assets

    • D. 

      Typically, the sum of the years' digits methods will result in less depreciation expense in the year of acquisition than will the double declining balance method

  • 20. 
    Once an asset is impaired, 
    • A. 

      Accumulated depreciation needs to be adjusted

    • B. 

      Annual depreciation expense is the same

    • C. 

      Subsequent years' depreciation expense is based upon annual changes in the asset's fair value

    • D. 

      The reduced book value is used to compute future years' depreciation

  • 21. 
    When a company writes-down an asset, it must disclose this information
    • A. 

      In the year of the write-down and the following year

    • B. 

      In the year of the write down

    • C. 

      In the year of the write-down and the following two years

    • D. 

      In the following three years but not in the year of the write down

  • 22. 
    Which one of the following disclosures is not required by GAAP?
    • A. 

      Balances of major classes of depreciable assets by nature or function

    • B. 

      Depreciation expense for each major class of asset

    • C. 

      Accumulated Depreciation on each depreciable asset

    • D. 

      An explanation of why the depreciation method used was selected by management

  • 23. 
    A student is defending a certain depreciation method.  She uses the argument that repairs and maintenance costs will probably increase as the asset gets older.  She also argues that the asset will produce less as it gets older.  What depreciation method is she probably defending?
    • A. 

      Sum of the years digits method

    • B. 

      Straight line method

    • C. 

      Sinking fund method

    • D. 

      Activity method

  • 24. 
    If an asset meets certain criteria, the asset is considered 'held for sale' and 
    • A. 

      No further depreciation is taken

    • B. 

      Regular depreciation is taken

    • C. 

      The asset is removed from the balance sheet

    • D. 

      The asset is written down to the residual value

  • 25. 
    On January 1, 2014, Jacob Corporation purchased equipment for $200,000.  The equipment had an estimated useful life of ten years and an estimated residual value of $40,000.  Using the double declining balance method, how much depreciation expense should Jacob Corp. report on the company's balance sheet at December 31, 2015?
    • A. 

      20,000

    • B. 

      16,000

    • C. 

      32,000

    • D. 

      40,000

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