AIPB Depreciation Exam Questions And
Complete Answers
(True or False) Whether a company uses GAAP rules or tax rules to compute
depreciation recorded in the financial statements depends on how the company
uses its financial statements - Answer True
(True of False) If a company's year-end financial statements are to be reviewed
or audited by a CPA, the depreciation amount for the statements is generally
computed under GAAP rules. - Answer True
(True of False) Even if a company's tax and GAAP depreciation expense are not
materially different, a CPA conducting an audit will require the company to use
the amount computed under GAAP. - Answer False
The adjusting entry to record $5,000 of depreciation expense in the general
ledger is: - Answer Depreciation Expense $5,000
Accumulated Depreciation Expense $5,000
Which of the following does not require using an independent CPA?
a. An audit of company financial statements
b. Preparation of the company tax return
c. A review of the company's financial statements
d. An opinion on whether the financial statements materially conform to GAAP
rules. - Answer b. Preparation of the company tax return
If a company is required to have an audit of its financial statements, then
a. GAAP depreciation must be the same as tax depreciation
b. If GAAP depreciation is materially different from the tax depreciation the
company must use the GAAP amount for its financial statements and the tax
amount for it tax return
c. GAAP depreciation must always be used for the company's financial
statements even if tax depreciation is not materially different
D. It does not matter whether the company uses GAAP or tax depreciation -
Answer b. If GAAP depreciation is materially different from the tax depreciation
,the company must use the GAAP amount for its financial statements and the tax
amount for it tax return
The balance sheet account showing total depreciation expense taken to date is
called: - Answer Accumulated Depreciation
Depreciation __________________ the cost of an asset over its estimated life. -
Answer allocates (expenses)
The purpose of depreciation is to _____________ the asset's cost to the revenue
that it helps the organization earn each year over its life. - Answer match
(True of False) Annual depreciation expense is the amount of cash a company
sets aside to replace a plant or equipment asset. - Answer False
(True or False) Depreciation expense computed under tax or GAAP rules is
usually not materially different - Answer False
(True or False) A company that wants a CPA to do a review of its financial
statements depreciates its plant and equipment assets under GAAP for its
federal income tax return. - Answer False
(True or False) Many of the concepts underlying tax depreciation rules are
similar to the concepts underlying GAAP depreciation rules - Answer True
A company is required to have an independent CPA audit its year-end financial
statements if...
a. the company needs to file an income tax return
b. The company must demonstrate that its financial statements conform with
GAAP
c. The company's stock is publicly traded
d. b and c - Answer d. b and c
Which of the following statements is true?
a. If depreciation expense under GAAP is not very different from depreciation
under federal income tax rules, the GAAP amount can be used on the federal
income tax return
b. If depreciation expense under federal income tax rules is not materially
different from depreciation expense under GAAP, the company can use the tax
amount on its financial statements and a CPA reviewing the statements may not
have to change this amount.
,c. Both a and b are true. - Answer b. If depreciation expense under federal
income tax rules is not materially different from depreciation expense under
GAAP, the company can use the tax amount on its financial statements and a
CPA reviewing the statements may not have to change this amount.
The most detailed work on a company's financial statements are performed in...
a. an audit
b. a review
c. a compilation - Answer a. an audit
Financial statements prepared solely for company management (do / do not)
____________ have to use the GAAP depreciation rules. - Answer Do Not
If a company uses the tax depreciation amount on its financial statements, a CPA
performing an audit will require the company to adjust depreciation expense if
the difference between the tax amount and the GAAP amount is
_____________________. - Answer Material
If a company prepares its financial statements under GAAP, it (does, does not)
___________________ have to use a CPA to prepare company income tax returns. -
Answer does not
Acquisition Cost - Residual Value = - Answer Depreciable Base
The four methods of depreciation are: - Answer Straight-Line Method
Units of Production Method
Declining Balance Method
Sum-Of-Years Digits Method
What accounts are debited and credited when discussing depreciation? -
Answer Debit - Depreciation Expense
Credit - Accumulated Depreciation
The depreciation expense account is a(n) (income statement / balance sheet)
__________________ account and accumulated depreciation is a(n) (income
, statement / balance sheet) __________________ account. - Answer Income
statement, Balance sheet
Acquisition Cost - Accumulated Depreciation = - Answer Book Value
(True or False) Book Value is the same as Fair Market Value. - Answer False
(True or False) The total amount of depreciation taken over the life of the asset is
the same regardless of which depreciation method is selected. - Answer True
(True or False) Net book value is a year-end estimate of the fair market value of a
company's depreciable assets. - Answer False
(True or False) The balance sheet shows the acquisition cost and the
accumulated depreciation of each asset. - Answer False
Which of the following assets is not depreciable?
a. building
b. machine
c. fence
d. land - Answer d. land
Which of the following is an income statement account?
a. Asset - Machine
b. Accumulated Depreciation - Equipment
Complete Answers
(True or False) Whether a company uses GAAP rules or tax rules to compute
depreciation recorded in the financial statements depends on how the company
uses its financial statements - Answer True
(True of False) If a company's year-end financial statements are to be reviewed
or audited by a CPA, the depreciation amount for the statements is generally
computed under GAAP rules. - Answer True
(True of False) Even if a company's tax and GAAP depreciation expense are not
materially different, a CPA conducting an audit will require the company to use
the amount computed under GAAP. - Answer False
The adjusting entry to record $5,000 of depreciation expense in the general
ledger is: - Answer Depreciation Expense $5,000
Accumulated Depreciation Expense $5,000
Which of the following does not require using an independent CPA?
a. An audit of company financial statements
b. Preparation of the company tax return
c. A review of the company's financial statements
d. An opinion on whether the financial statements materially conform to GAAP
rules. - Answer b. Preparation of the company tax return
If a company is required to have an audit of its financial statements, then
a. GAAP depreciation must be the same as tax depreciation
b. If GAAP depreciation is materially different from the tax depreciation the
company must use the GAAP amount for its financial statements and the tax
amount for it tax return
c. GAAP depreciation must always be used for the company's financial
statements even if tax depreciation is not materially different
D. It does not matter whether the company uses GAAP or tax depreciation -
Answer b. If GAAP depreciation is materially different from the tax depreciation
,the company must use the GAAP amount for its financial statements and the tax
amount for it tax return
The balance sheet account showing total depreciation expense taken to date is
called: - Answer Accumulated Depreciation
Depreciation __________________ the cost of an asset over its estimated life. -
Answer allocates (expenses)
The purpose of depreciation is to _____________ the asset's cost to the revenue
that it helps the organization earn each year over its life. - Answer match
(True of False) Annual depreciation expense is the amount of cash a company
sets aside to replace a plant or equipment asset. - Answer False
(True or False) Depreciation expense computed under tax or GAAP rules is
usually not materially different - Answer False
(True or False) A company that wants a CPA to do a review of its financial
statements depreciates its plant and equipment assets under GAAP for its
federal income tax return. - Answer False
(True or False) Many of the concepts underlying tax depreciation rules are
similar to the concepts underlying GAAP depreciation rules - Answer True
A company is required to have an independent CPA audit its year-end financial
statements if...
a. the company needs to file an income tax return
b. The company must demonstrate that its financial statements conform with
GAAP
c. The company's stock is publicly traded
d. b and c - Answer d. b and c
Which of the following statements is true?
a. If depreciation expense under GAAP is not very different from depreciation
under federal income tax rules, the GAAP amount can be used on the federal
income tax return
b. If depreciation expense under federal income tax rules is not materially
different from depreciation expense under GAAP, the company can use the tax
amount on its financial statements and a CPA reviewing the statements may not
have to change this amount.
,c. Both a and b are true. - Answer b. If depreciation expense under federal
income tax rules is not materially different from depreciation expense under
GAAP, the company can use the tax amount on its financial statements and a
CPA reviewing the statements may not have to change this amount.
The most detailed work on a company's financial statements are performed in...
a. an audit
b. a review
c. a compilation - Answer a. an audit
Financial statements prepared solely for company management (do / do not)
____________ have to use the GAAP depreciation rules. - Answer Do Not
If a company uses the tax depreciation amount on its financial statements, a CPA
performing an audit will require the company to adjust depreciation expense if
the difference between the tax amount and the GAAP amount is
_____________________. - Answer Material
If a company prepares its financial statements under GAAP, it (does, does not)
___________________ have to use a CPA to prepare company income tax returns. -
Answer does not
Acquisition Cost - Residual Value = - Answer Depreciable Base
The four methods of depreciation are: - Answer Straight-Line Method
Units of Production Method
Declining Balance Method
Sum-Of-Years Digits Method
What accounts are debited and credited when discussing depreciation? -
Answer Debit - Depreciation Expense
Credit - Accumulated Depreciation
The depreciation expense account is a(n) (income statement / balance sheet)
__________________ account and accumulated depreciation is a(n) (income
, statement / balance sheet) __________________ account. - Answer Income
statement, Balance sheet
Acquisition Cost - Accumulated Depreciation = - Answer Book Value
(True or False) Book Value is the same as Fair Market Value. - Answer False
(True or False) The total amount of depreciation taken over the life of the asset is
the same regardless of which depreciation method is selected. - Answer True
(True or False) Net book value is a year-end estimate of the fair market value of a
company's depreciable assets. - Answer False
(True or False) The balance sheet shows the acquisition cost and the
accumulated depreciation of each asset. - Answer False
Which of the following assets is not depreciable?
a. building
b. machine
c. fence
d. land - Answer d. land
Which of the following is an income statement account?
a. Asset - Machine
b. Accumulated Depreciation - Equipment
