Q: Under the units-of-production method, what is the depreciation expense for the first year if the truck (cost $$41,000, residual value 1$$,000, useful life 100,000 miles) is driven 20,000 miles?

$$\frac{40,000}{100,000} \times 20,000 = 8,000$$

Q: A company purchases a warehouse for $$500,000 on September 1. The estimated life is 20 years, and the residual value is 80$$,000. What is the straight-line depreciation expense for the first accounting year ending May 31?

$$\frac{500,000 - 80,000}{20} \times \frac{9}{12} = 15,750$$

Question 1

Which formula correctly calculates the book value of a plant asset as shown on the balance sheet?

Accepted Answer

$$Book\ Value = Cost - Accumulated\ Depreciation$$

Question 2

Which of the following assets is NOT depreciated?

Accepted Answer

Land

Question 3

Depreciation is necessary because plant assets:

Accepted Answer

Wear out, grow obsolete, and lose value over time

Question 4

Which depreciation method is best suited for assets that generate revenue evenly over time?

Accepted Answer

Straight-line method

Question 5

A truck is purchased for $$41,000 with an estimated residual value of 1$$,000 and a useful life of 5 years. What is the annual depreciation expense using the straight-line method?

Accepted Answer

$$\frac{41,000 - 1,000}{5} = 8,000$$

Question 6

Under the units-of-production method, what is the depreciation expense for the first year if the truck (cost $$41,000, residual value 1$$,000, useful life 100,000 miles) is driven 20,000 miles?

Accepted Answer

$$\frac{40,000}{100,000} 	imes 20,000 = 8,000$$

Question 7

Which statement best describes the double-declining-balance (DDB) depreciation method?

Accepted Answer

It multiplies the asset's declining book value by twice the straight-line rate.

Question 8

For the double-declining-balance method, what is the depreciation rate for an asset with a 5-year useful life?

Accepted Answer

$$2 	imes \frac{1}{5} = 0.4$$

Question 9

Which of the following is NOT a factor in measuring depreciation?

Accepted Answer

Market value

Question 10

A company purchases a warehouse for $$500,000 on September 1. The estimated life is 20 years, and the residual value is 80$$,000. What is the straight-line depreciation expense for the first accounting year ending May 31?

Accepted Answer

$$\frac{500,000 - 80,000}{20} 	imes \frac{9}{12} = 15,750$$

Question 11

Which depreciation method is most frequently used by companies according to Exhibit 7-9?

Accepted Answer

Straight-line method

Question 12

Which depreciation method is best for assets that wear out because of use rather than time?

Accepted Answer

Units-of-production method

Question 13

If a truck's book value at the beginning of the year is $24,600 and the DDB rate is 0.4, what is the depreciation expense for that year?

Accepted Answer

$$24,600 	imes 0.4 = 9,840$$

Question 14

Which of the following statements about the DDB method is TRUE?

Accepted Answer

Final year depreciation is a plug to reduce book value to estimated residual value.

Question 15

What is the per-unit depreciation expense for a truck with a depreciable cost of $40,000 and a useful life of 100,000 miles?

Accepted Answer

$$\frac{40,000}{100,000} = 0.4$$

Question 16

Which depreciation method results in the highest depreciation expense in the first year?

Accepted Answer

Double-declining-balance method

Question 17

If an asset is used more heavily in the early years, which depreciation method best matches the expense to the revenue generated?

Accepted Answer

Double-declining-balance method

Question 18

Which of the following journal entries records annual depreciation expense for a plant asset?

Accepted Answer

Debit Depreciation Expense; Credit Accumulated Depreciation

Question 19

A company drives its truck 30,000 miles in the second year. What is the units-of-production depreciation expense for that year if the per-mile rate is $0.4?

Accepted Answer

$$30,000 	imes 0.4 = 12,000$$

Depreciation of Plant Assets: Methods, Measurement, and Comparison

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