WGU D104
Intermediate Accounting II
OA2 (Units 4-6)
Actual Questions with Verified Answers
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➢60 OA Exam Questions w/ Answers
➢Complete Units 4, 5, and 6
➢Accounting Rule Included
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,D104 IA 2 OA2 Units 4-6
A company has a policy of calculating depreciation using the nearest fraction of a year
policy. On May 10, the company purchased and placed in service an asset costing
$50,000 with a five-year useful life. The Company uses the straight-line depreciation
method.
What fraction is used to calculate the depreciation expense on December 31 and what is
the depreciation expense on December 31? (round your answer to a whole number)
$6,392
$6,392 = (7.67/12) x ($50,000/5)
Accounting Rule: the nearest fraction of a year policy states that the depreciation
expense is prorated at the time the asset is placed in service
You need to know the various fractional-year policies (shown in the attached image)
,A company purchases an asset on April 5 of the current year. The company would like
to use the depreciation policy that will result in the highest depreciation expense in the
last year of the asset's useful life.
Which depreciation policy should be used?
a. nearest full month.
b. half-year convention.
c. nearest fraction of the year.
d. full year in period of disposal.
d. full year in period of disposal.
You need to know the various fractional-year policies (shown in the attached image.)
A company owns a machine that it purchased on January 1, year 1 for $600,000. The
machine has an estimated useful life of 5 years and an estimated salvage value of
$75,000. The company uses the sum-of-the-years'-digits method.
What is the depreciation expense for each year and book value of the machine at the
end of year 5?
,Year 1: ($600,000 - $75,000) x 5/15 = $175,000
Year 2: ($600,000 - $75,000) x 4/15 = $140,000
Year 3: ($600,000 - $75,000) x 3/15 = $105,000
Year 4: $(600,000 - $75,000) x 2/15 = $70,000
Year 5: ($600,000 - $75,000) x 1/15 = $35,000
Total accumulated depreciation $525,000 = ($175,000 + $140,000 + $105,000+ $70,000
+ $35,000)
Book value of the machine at the end of year 5 is its salvage $75,000 = $600,000 –
$525,000
Accounting Rule: the sum-of-the-years’-digits method is an accelerated depreciation
method resulting in higher deprecation cost in the earlier years and lower charges in
later periods. It is a passage of time depreciation method that results in a decreasing
depreciation charge based on a decreasing fraction of depreciable cost (original cost
less salvage value). Each fraction uses the sum of the years as a denominator (e.g. 5 + 4
+ 3 + 2 + 1 = 15). The numerator is the number of years of estimated life remaining as
of the beginning of the year. In this method, the numerator decreases year by year, and
the denominator remains constant (e.g. 5/15, 4/15, 3/15, 2/15, and 1/15). At the end of
the asset’s useful life, the balance remaining should equal the salvage value. Never
depreciate beyond an asset’s salvage value.
A company purchased a truck at the beginning of 2020 for $109,200. The truck is
estimated to have a salvage value of $4,200 and a useful life of 120,000 miles. It was
driven 21,000 miles in 2020 and 29,000 miles in 2021.
What is the depreciation expense for 2020 and 2021 using the variable charge method?
Year 2020: $18,375
Year 2021: $25,375
Formula:
,( (Cost - Salvage Value) × Current Miles)/ Total Estimated Miles
Year 2020: (($109,200 – $4,200) × 21,000)/ 120,000 = $18,375
Year 2021: (($109,200 – $4,200) × 29,000)/ 120,000 = $25,375
Accounting Rule: The activity method (also called the variable-charge or units-of-
activity/production approach) assumes that depreciation is a function of use or
productivity, instead of the passage of time. It calculates depreciation based on the
asset’s activity such as the number of units produced or the number of hours/miles the
asset is used during the period. In other words, this method focuses on the actual use of
the asset rather than the passage of time. The amount of depreciation expense is
directly proportional to the amount of the asset’s usage. The activity rate is multiplied by
the depreciable cost (original cost less salvage value). Another formula is: (Actual
Activity in Period/Total Estimate Activity) x (Cost – Salvage Value)
Equipment with a cost of $450,000 has an estimated salvage value of $30,000 and an
estimated life of 4 years or 10,000 hours. It is to be depreciated by the units-of-activity
method.
What is the amount of depreciation for the first full year, during which the equipment
was used 2,700 hours?
$113,400
$113,400 = (2,,000) x ($450,000 – $30,000)
Accounting Rule: (Actual Activity in Period/Total Estimate Activity) x (Cost – Salvage
Value)
A company placed an asset into service on day 1 of year 1 with the following data
related to the purchase:
Cost of machinery $225,000
Estimated salvage value $75,000
Useful life 5 years
,What amount of annual depreciation expense should be recorded in the first and
second years using double-declining balance method, and what is the machine's book
value for each of the years?
Year 1:
$90,000 depreciation expense
$135,000 book value
Year 2:
$54,000 depreciation expense
$81,000 book value
Accounting Rule: the double-declining balance (DDB) method is an accelerated
depreciation that records larger depreciation expenses during the earlier years of an
asset’s useful life, and smaller ones in later years. First, divide 100% by the number of
years in the asset’s useful life, this is the straight-line depreciation rate. Then, multiply
that number by 2 and that is the double-declining depreciation rate. Multiply that rate
by the asset’s book value in each year. Depreciation continues until the asset’s value
declines to its salvage value.
The activity method of depreciation:
a. Is a variable charge approach.
b. Assumes that depreciation is a function of the passage of time.
c. Conceptually associates cost in terms of input measures.
d. All of these answers are correct.
a. Is a variable charge approach.
Accounting Rule: under the activity method, the amount of depreciation expense is
directly proportional to the amount of the asset’s usage.
Depreciation is a variable expense if the depreciation method used is:
a. units-of-production.
,b. straight-line.
c. sum-of-the-years'-digits.
d. declining-balance.
a. units-of-production.
Accounting Rule: the activity method is also called the variable-charge or units-of-
production approach.
9. In the first year of an asset's life, which of the following methods, in addition to
straight line, has the smallest depreciation?
a.MACRS.
b. declining balance.
c. sum-of-the-years' digits.
d. composite or group.
d. composite or group.
Composite or group depreciation calculates annual depreciation using the straight line
method.
On July 1, 2020, a company purchased a machine with a five-year useful life for $10,000
and no salvage value. The company prepares accrual-basis financial statements on a
calendar-year basis.
How many months should be included in the calculation of depreciation expense for the
year of acquisition using the double-declining-balance method?
Six
When depreciation is computed for partial periods under a decreasing charge
depreciation method, it is necessary to:
a. charge a full year's depreciation to the year of acquisition.
b. determine depreciation expense for the full year and then prorate the expense
between the two periods involved.
,c. use the straight-line method for the year in which the asset is sold or otherwise
disposed of.
d. use a salvage value equal to the first year's partial depreciation charge.
b. determine depreciation expense for the full year and then prorate the expense
between the two periods involved.
Accounting Rule: in computing depreciation expense for partial periods, first determine
the depreciation expense for the full year and then prorate this amount between the
two periods involved.
A lumber retailer recently purchased $500,000 of lumber from a local lumber mill with
terms 2/10, n/30.
How should this transaction be reported on the balance sheet?
a. returnable cash deposits.
b. notes payable.
c. accounts payable.
d. unearned revenue.
c. accounts payable.
Accounting Rule: balances owed to others for goods, supplies, or services purchased on
account are accounts payable or trade accounts payable.
Which of the following is not a current liability?
a. cash dividends declared.
b. deposits received from customers.
c. deferred revenue.
d. preferred dividends in arrears.
d. preferred dividends in arrears.
,Accounting Rule: accumulated but undeclared dividends on cumulative preferred stock
is not a currently liability. In addition, dividends payable in the form of additional shares
of stock (stock dividend) are not recognized as a current liability.
On March 1, 2020, a company borrows money from its bank. The company signs a
$100,000, 6%, four-month note. The company has a calendar year end and prepares
financial statements annually.
1) What is the journal entry to record issuance of the note?
2) What is the journal entry to record payment of the note at maturity?
1) debit cash 100,000
credit notes payable 100,000
2) debit notes payable 100,000
debit interest expense 2,000*
credit cash 102,000
For question 2, the interest expense equals. ($100,000 x 6%) x 4/12
Interest is calculated on an annual basis.
On March 1, 2020, a company borrows money from its bank. The company signs a
$102,000, zero-interest-bearing, four-month note. The present value of the note is
$100,000. The company has a calendar year end and prepares financial statements
annually.
What is the journal entry the company records for issuance of the note?
debit cash 100,000
debit discount on notes payable 2,000
credit notes payable 102,000
Intermediate Accounting II
OA2 (Units 4-6)
Actual Questions with Verified Answers
Pass the Exam with Confidence
What You Will Get:
➢60 OA Exam Questions w/ Answers
➢Complete Units 4, 5, and 6
➢Accounting Rule Included
Take and pass the OA :)
,PREVIEW PAGES BELOW
Get the Complete PDF
After Purchase
"If you require further clarification or in need of
any study resources, feel free to Message me."
,D104 IA 2 OA2 Units 4-6
A company has a policy of calculating depreciation using the nearest fraction of a year
policy. On May 10, the company purchased and placed in service an asset costing
$50,000 with a five-year useful life. The Company uses the straight-line depreciation
method.
What fraction is used to calculate the depreciation expense on December 31 and what is
the depreciation expense on December 31? (round your answer to a whole number)
$6,392
$6,392 = (7.67/12) x ($50,000/5)
Accounting Rule: the nearest fraction of a year policy states that the depreciation
expense is prorated at the time the asset is placed in service
You need to know the various fractional-year policies (shown in the attached image)
,A company purchases an asset on April 5 of the current year. The company would like
to use the depreciation policy that will result in the highest depreciation expense in the
last year of the asset's useful life.
Which depreciation policy should be used?
a. nearest full month.
b. half-year convention.
c. nearest fraction of the year.
d. full year in period of disposal.
d. full year in period of disposal.
You need to know the various fractional-year policies (shown in the attached image.)
A company owns a machine that it purchased on January 1, year 1 for $600,000. The
machine has an estimated useful life of 5 years and an estimated salvage value of
$75,000. The company uses the sum-of-the-years'-digits method.
What is the depreciation expense for each year and book value of the machine at the
end of year 5?
,Year 1: ($600,000 - $75,000) x 5/15 = $175,000
Year 2: ($600,000 - $75,000) x 4/15 = $140,000
Year 3: ($600,000 - $75,000) x 3/15 = $105,000
Year 4: $(600,000 - $75,000) x 2/15 = $70,000
Year 5: ($600,000 - $75,000) x 1/15 = $35,000
Total accumulated depreciation $525,000 = ($175,000 + $140,000 + $105,000+ $70,000
+ $35,000)
Book value of the machine at the end of year 5 is its salvage $75,000 = $600,000 –
$525,000
Accounting Rule: the sum-of-the-years’-digits method is an accelerated depreciation
method resulting in higher deprecation cost in the earlier years and lower charges in
later periods. It is a passage of time depreciation method that results in a decreasing
depreciation charge based on a decreasing fraction of depreciable cost (original cost
less salvage value). Each fraction uses the sum of the years as a denominator (e.g. 5 + 4
+ 3 + 2 + 1 = 15). The numerator is the number of years of estimated life remaining as
of the beginning of the year. In this method, the numerator decreases year by year, and
the denominator remains constant (e.g. 5/15, 4/15, 3/15, 2/15, and 1/15). At the end of
the asset’s useful life, the balance remaining should equal the salvage value. Never
depreciate beyond an asset’s salvage value.
A company purchased a truck at the beginning of 2020 for $109,200. The truck is
estimated to have a salvage value of $4,200 and a useful life of 120,000 miles. It was
driven 21,000 miles in 2020 and 29,000 miles in 2021.
What is the depreciation expense for 2020 and 2021 using the variable charge method?
Year 2020: $18,375
Year 2021: $25,375
Formula:
,( (Cost - Salvage Value) × Current Miles)/ Total Estimated Miles
Year 2020: (($109,200 – $4,200) × 21,000)/ 120,000 = $18,375
Year 2021: (($109,200 – $4,200) × 29,000)/ 120,000 = $25,375
Accounting Rule: The activity method (also called the variable-charge or units-of-
activity/production approach) assumes that depreciation is a function of use or
productivity, instead of the passage of time. It calculates depreciation based on the
asset’s activity such as the number of units produced or the number of hours/miles the
asset is used during the period. In other words, this method focuses on the actual use of
the asset rather than the passage of time. The amount of depreciation expense is
directly proportional to the amount of the asset’s usage. The activity rate is multiplied by
the depreciable cost (original cost less salvage value). Another formula is: (Actual
Activity in Period/Total Estimate Activity) x (Cost – Salvage Value)
Equipment with a cost of $450,000 has an estimated salvage value of $30,000 and an
estimated life of 4 years or 10,000 hours. It is to be depreciated by the units-of-activity
method.
What is the amount of depreciation for the first full year, during which the equipment
was used 2,700 hours?
$113,400
$113,400 = (2,,000) x ($450,000 – $30,000)
Accounting Rule: (Actual Activity in Period/Total Estimate Activity) x (Cost – Salvage
Value)
A company placed an asset into service on day 1 of year 1 with the following data
related to the purchase:
Cost of machinery $225,000
Estimated salvage value $75,000
Useful life 5 years
,What amount of annual depreciation expense should be recorded in the first and
second years using double-declining balance method, and what is the machine's book
value for each of the years?
Year 1:
$90,000 depreciation expense
$135,000 book value
Year 2:
$54,000 depreciation expense
$81,000 book value
Accounting Rule: the double-declining balance (DDB) method is an accelerated
depreciation that records larger depreciation expenses during the earlier years of an
asset’s useful life, and smaller ones in later years. First, divide 100% by the number of
years in the asset’s useful life, this is the straight-line depreciation rate. Then, multiply
that number by 2 and that is the double-declining depreciation rate. Multiply that rate
by the asset’s book value in each year. Depreciation continues until the asset’s value
declines to its salvage value.
The activity method of depreciation:
a. Is a variable charge approach.
b. Assumes that depreciation is a function of the passage of time.
c. Conceptually associates cost in terms of input measures.
d. All of these answers are correct.
a. Is a variable charge approach.
Accounting Rule: under the activity method, the amount of depreciation expense is
directly proportional to the amount of the asset’s usage.
Depreciation is a variable expense if the depreciation method used is:
a. units-of-production.
,b. straight-line.
c. sum-of-the-years'-digits.
d. declining-balance.
a. units-of-production.
Accounting Rule: the activity method is also called the variable-charge or units-of-
production approach.
9. In the first year of an asset's life, which of the following methods, in addition to
straight line, has the smallest depreciation?
a.MACRS.
b. declining balance.
c. sum-of-the-years' digits.
d. composite or group.
d. composite or group.
Composite or group depreciation calculates annual depreciation using the straight line
method.
On July 1, 2020, a company purchased a machine with a five-year useful life for $10,000
and no salvage value. The company prepares accrual-basis financial statements on a
calendar-year basis.
How many months should be included in the calculation of depreciation expense for the
year of acquisition using the double-declining-balance method?
Six
When depreciation is computed for partial periods under a decreasing charge
depreciation method, it is necessary to:
a. charge a full year's depreciation to the year of acquisition.
b. determine depreciation expense for the full year and then prorate the expense
between the two periods involved.
,c. use the straight-line method for the year in which the asset is sold or otherwise
disposed of.
d. use a salvage value equal to the first year's partial depreciation charge.
b. determine depreciation expense for the full year and then prorate the expense
between the two periods involved.
Accounting Rule: in computing depreciation expense for partial periods, first determine
the depreciation expense for the full year and then prorate this amount between the
two periods involved.
A lumber retailer recently purchased $500,000 of lumber from a local lumber mill with
terms 2/10, n/30.
How should this transaction be reported on the balance sheet?
a. returnable cash deposits.
b. notes payable.
c. accounts payable.
d. unearned revenue.
c. accounts payable.
Accounting Rule: balances owed to others for goods, supplies, or services purchased on
account are accounts payable or trade accounts payable.
Which of the following is not a current liability?
a. cash dividends declared.
b. deposits received from customers.
c. deferred revenue.
d. preferred dividends in arrears.
d. preferred dividends in arrears.
,Accounting Rule: accumulated but undeclared dividends on cumulative preferred stock
is not a currently liability. In addition, dividends payable in the form of additional shares
of stock (stock dividend) are not recognized as a current liability.
On March 1, 2020, a company borrows money from its bank. The company signs a
$100,000, 6%, four-month note. The company has a calendar year end and prepares
financial statements annually.
1) What is the journal entry to record issuance of the note?
2) What is the journal entry to record payment of the note at maturity?
1) debit cash 100,000
credit notes payable 100,000
2) debit notes payable 100,000
debit interest expense 2,000*
credit cash 102,000
For question 2, the interest expense equals. ($100,000 x 6%) x 4/12
Interest is calculated on an annual basis.
On March 1, 2020, a company borrows money from its bank. The company signs a
$102,000, zero-interest-bearing, four-month note. The present value of the note is
$100,000. The company has a calendar year end and prepares financial statements
annually.
What is the journal entry the company records for issuance of the note?
debit cash 100,000
debit discount on notes payable 2,000
credit notes payable 102,000
