Intermediate Accounting 2 Exam 1 Questions With 100% Verified Solutions

Intermediate Accounting 2 Exam 1 Questions With 100% Verified Solutions The major objection to the straight-line method is that it assumes the asset's economic usefulness and maintenance repair expense are the same each year. - ANSWER -True The units-of-production approach to depreciation is appropriate when depreciation is a function of time instead of activity. - ANSWER -False, Function of Production An accelerated depreciation method is appropriate when the asset's economic usefulness is the same each year. - ANSWER -False, Straight Line Depreciation The declining-balance method does not deduct the salvage value in computing the depreciation base. - ANSWER -True If an industrial firm uses the units-of-production method for computing depreciation on its only plant asset, factory machinery, the credit to accumulated depreciation from period to period during the life of the firm will - ANSWER -a. be constant. b. vary with unit sales. c. vary with sales revenue. d. vary with production. Ans D: Vary with production Jasmine Company purchased a depreciable asset for $375,000. The estimated salvage value is $25,000, and the estimated useful life is 8 years. The double-declining balance method will be used for depreciation. What is the depreciation expense for the second year on this asset? - ANSWER -a. $43,750 b. $65,625 c. $70,313 d. $93,750 Ans C: $70,313 $375,000 *2/8 = $93,750 yr 1 dep $281,250 *2/8 = $70,313 yr 2 dep Endeavor Company purchased a depreciable asset for $1,200,000. The estimated salvage value is $60,000, and the estimated useful life is 10,000 hours. Endeavor used the asset for 1,100 hours in the current year. The activity method will be used for depreciation. What is the depreciation expense on this asset? - ANSWER -a. $114,000 b. $125,400 c. $132,000 d. $1,140,000 Ans B: $125,400 1,200,000-60,000 = 1,140,000 1,140,000/10,000 = 114 per hour 114 * 1100 = $125,400 A plant asset purchased for $500,000 has an estimated life of 10 years and a residual value of $25,000. Depreciation for the second year of use, determined by the declining-balance method at twice the straight-line rate is $_____________. - ANSWER -$500,000 * 2/10 = $100,000 Year 1 $400,000 * 2/10 = $80,000 Year 2 Ans: $80,000 A plant asset purchased for $440,000 at the beginning of the year has an estimated life of 5 years and a residual value of $40,000. Depreciation for the third year, determined by the sum-of-the-years'-digits method is $______________. - ANSWER -$440,000 - $40,000 = $400,000 $400,000 * 3/15 = $80,000 Ans: $80,000