WGU D104 Unit 4 Intermediate Accounting II Practice Exam 70
Questions with Answers and Detailed Rationales
1. What is the annual straight-line depreciation formula?
Answer Annual depreciation = (cost − estimated salvage value) ÷ estimated
useful life.
Rationale Straight-line depreciation allocates the depreciable base evenly over
the asset’s useful life. Cost is reduced by salvage value because the amount
expected to remain at disposal is not depreciated. This method measures
allocation of cost, rather than changes in the asset’s market value.
2. Shoes Inc. places a $150,000 machine in service on August 1, 2017.
Salvage value is $24,000 and useful life is five years. What is the depreciable
base?
Answer $126,000.
Rationale Subtract salvage value from historical cost: $150,000 − $24,000 =
$126,000. This base is allocated over the machine’s service life under straight-
line, activity, or sum-of-the-years’-digits depreciation. The same base is the
maximum total depreciation, absent later changes in estimates or impairment.
3. For the Shoes machine described in Question 2, compute full-year
straight-line depreciation.
Answer $25,200 per year.
Rationale Divide the $126,000 depreciable base by five years: $126,000/5 =
$25,200. A full year’s straight-line charge is constant while the cost, salvage value,
and useful-life estimates remain unchanged. Partial calendar years require a
separate time adjustment.
4. For the Shoes machine described in Question 2, compute 2017 straight-
line depreciation using monthly proration and a December 31 year-end.
Answer $10,500.
Rationale The machine is in service from August through December, or five
months. Multiply annual depreciation of $25,200 by 5/12: $25,200 × 5/12 =
$10,500. Use the date the asset becomes available for use, rather than the
payment or order date.
5. For the Shoes machine described in Question 2, compute 2018 straight-
line depreciation assuming a full year in service and unchanged estimates.
Answer $25,200.
D104 Unit 4 Practice Exam | 1
,Rationale The 2018 calendar year includes 12 months of service, so the annual
charge is ($150,000 − $24,000)/5 = $25,200. The initial partial-year calculation
does not reduce the annual rate for later full years. The source’s “25,2000” is a
typographical error.
6. What is the journal entry to record the Shoes machine’s 2017 straight-
line depreciation of $10,500, assuming it is charged directly to expense?
Answer Dr Depreciation expense $10,500; Cr Accumulated depreciation—
machinery $10,500.
Rationale The debit recognizes the period’s allocated cost. The credit increases a
contra-asset account rather than reducing the machine’s original cost directly. If
the machine is used in manufacturing, its depreciation may instead be included in
production overhead and inventory before becoming cost of goods sold.
7. For the Shoes machine described in Question 2, what is its December 31,
2018 carrying amount under straight-line depreciation?
Answer $114,300.
Rationale Accumulated depreciation is $10,500 for 2017 plus $25,200 for 2018,
totaling $35,700. Carrying amount equals $150,000 historical cost less $35,700
accumulated depreciation = $114,300. Carrying amount is neither the salvage
value nor necessarily the market value at that date.
8. What is the units-of-activity depreciation formula?
Answer Depreciation = [(cost − salvage value) ÷ total estimated activity] × actual
period activity.
Rationale The estimated total activity establishes a cost per unit, hour, or other
measure of usage. Multiplying by actual activity assigns cost to the period that
uses the asset. Parentheses matter: subtract salvage from cost before dividing by
estimated activity.
9. The Shoes machine costs $150,000, has $24,000 salvage value, and is
expected to operate for 21,000 hours. Compute depreciation per service
hour.
Answer $6 per hour.
Rationale The depreciable base is $126,000. Divide it by the estimated 21,000
service hours: $126,000/21,000 = $6 per hour. This rate is based on total
expected lifetime activity, not the five-year useful life or the hours used in one
year.
10. The Shoes machine described in Question 9 operates for 800 hours in
2017. Compute activity-method depreciation.
D104 Unit 4 Practice Exam | 2
, Answer $4,800.
Rationale Multiply actual use by the $6 hourly rate: 800 × $6 = $4,800. Do not
multiply this result again by 5/12. Actual hours already measure the activity that
occurred during the partial year, so another time adjustment would understate
depreciation.
11. The Shoes machine described in Question 9 operates for 3,000 hours in
2018. Compute activity-method depreciation.
Answer $18,000.
Rationale At $6 per hour, 3,000 hours produce $18,000 depreciation. Unlike
straight-line depreciation, the charge varies with use. A higher charge in a busy
year does not indicate a change in the method; it reflects the activity-based
allocation established at acquisition.
12. For the Shoes machine described in Question 9, compute its carrying
amount after 800 hours in 2017 and 3,000 hours in 2018.
Answer $127,200.
Rationale Cumulative activity is 3,800 hours, giving accumulated depreciation of
3,800 × $6 = $22,800. Subtract this amount from cost: $150,000 − $22,800 =
$127,200. The computation assumes unchanged estimates, no impairment, and
no other depreciation or capitalized improvements.
13. A machine uses units-of-activity depreciation and records zero
operating hours this year. Must it record a positive activity-based charge?
Answer Not necessarily; zero activity generally produces zero depreciation
under that method.
Rationale The formula multiplies the activity rate by actual activity. With zero
actual hours, the calculated activity charge is zero. However, management must
still consider whether the method and useful-life estimates remain appropriate
and whether idleness signals impairment; zero production does not
automatically eliminate those reviews.
14. What is the sum-of-the-years’-digits denominator for a five-year useful
life?
Answer 15.
Rationale Add the years: 5 + 4 + 3 + 2 + 1 = 15, or use n(n + 1)/2 = 5 × 6/2. The
denominator is not simply the useful life of five years. The numerator starts at
five and decreases each service year.
D104 Unit 4 Practice Exam | 3
Questions with Answers and Detailed Rationales
1. What is the annual straight-line depreciation formula?
Answer Annual depreciation = (cost − estimated salvage value) ÷ estimated
useful life.
Rationale Straight-line depreciation allocates the depreciable base evenly over
the asset’s useful life. Cost is reduced by salvage value because the amount
expected to remain at disposal is not depreciated. This method measures
allocation of cost, rather than changes in the asset’s market value.
2. Shoes Inc. places a $150,000 machine in service on August 1, 2017.
Salvage value is $24,000 and useful life is five years. What is the depreciable
base?
Answer $126,000.
Rationale Subtract salvage value from historical cost: $150,000 − $24,000 =
$126,000. This base is allocated over the machine’s service life under straight-
line, activity, or sum-of-the-years’-digits depreciation. The same base is the
maximum total depreciation, absent later changes in estimates or impairment.
3. For the Shoes machine described in Question 2, compute full-year
straight-line depreciation.
Answer $25,200 per year.
Rationale Divide the $126,000 depreciable base by five years: $126,000/5 =
$25,200. A full year’s straight-line charge is constant while the cost, salvage value,
and useful-life estimates remain unchanged. Partial calendar years require a
separate time adjustment.
4. For the Shoes machine described in Question 2, compute 2017 straight-
line depreciation using monthly proration and a December 31 year-end.
Answer $10,500.
Rationale The machine is in service from August through December, or five
months. Multiply annual depreciation of $25,200 by 5/12: $25,200 × 5/12 =
$10,500. Use the date the asset becomes available for use, rather than the
payment or order date.
5. For the Shoes machine described in Question 2, compute 2018 straight-
line depreciation assuming a full year in service and unchanged estimates.
Answer $25,200.
D104 Unit 4 Practice Exam | 1
,Rationale The 2018 calendar year includes 12 months of service, so the annual
charge is ($150,000 − $24,000)/5 = $25,200. The initial partial-year calculation
does not reduce the annual rate for later full years. The source’s “25,2000” is a
typographical error.
6. What is the journal entry to record the Shoes machine’s 2017 straight-
line depreciation of $10,500, assuming it is charged directly to expense?
Answer Dr Depreciation expense $10,500; Cr Accumulated depreciation—
machinery $10,500.
Rationale The debit recognizes the period’s allocated cost. The credit increases a
contra-asset account rather than reducing the machine’s original cost directly. If
the machine is used in manufacturing, its depreciation may instead be included in
production overhead and inventory before becoming cost of goods sold.
7. For the Shoes machine described in Question 2, what is its December 31,
2018 carrying amount under straight-line depreciation?
Answer $114,300.
Rationale Accumulated depreciation is $10,500 for 2017 plus $25,200 for 2018,
totaling $35,700. Carrying amount equals $150,000 historical cost less $35,700
accumulated depreciation = $114,300. Carrying amount is neither the salvage
value nor necessarily the market value at that date.
8. What is the units-of-activity depreciation formula?
Answer Depreciation = [(cost − salvage value) ÷ total estimated activity] × actual
period activity.
Rationale The estimated total activity establishes a cost per unit, hour, or other
measure of usage. Multiplying by actual activity assigns cost to the period that
uses the asset. Parentheses matter: subtract salvage from cost before dividing by
estimated activity.
9. The Shoes machine costs $150,000, has $24,000 salvage value, and is
expected to operate for 21,000 hours. Compute depreciation per service
hour.
Answer $6 per hour.
Rationale The depreciable base is $126,000. Divide it by the estimated 21,000
service hours: $126,000/21,000 = $6 per hour. This rate is based on total
expected lifetime activity, not the five-year useful life or the hours used in one
year.
10. The Shoes machine described in Question 9 operates for 800 hours in
2017. Compute activity-method depreciation.
D104 Unit 4 Practice Exam | 2
, Answer $4,800.
Rationale Multiply actual use by the $6 hourly rate: 800 × $6 = $4,800. Do not
multiply this result again by 5/12. Actual hours already measure the activity that
occurred during the partial year, so another time adjustment would understate
depreciation.
11. The Shoes machine described in Question 9 operates for 3,000 hours in
2018. Compute activity-method depreciation.
Answer $18,000.
Rationale At $6 per hour, 3,000 hours produce $18,000 depreciation. Unlike
straight-line depreciation, the charge varies with use. A higher charge in a busy
year does not indicate a change in the method; it reflects the activity-based
allocation established at acquisition.
12. For the Shoes machine described in Question 9, compute its carrying
amount after 800 hours in 2017 and 3,000 hours in 2018.
Answer $127,200.
Rationale Cumulative activity is 3,800 hours, giving accumulated depreciation of
3,800 × $6 = $22,800. Subtract this amount from cost: $150,000 − $22,800 =
$127,200. The computation assumes unchanged estimates, no impairment, and
no other depreciation or capitalized improvements.
13. A machine uses units-of-activity depreciation and records zero
operating hours this year. Must it record a positive activity-based charge?
Answer Not necessarily; zero activity generally produces zero depreciation
under that method.
Rationale The formula multiplies the activity rate by actual activity. With zero
actual hours, the calculated activity charge is zero. However, management must
still consider whether the method and useful-life estimates remain appropriate
and whether idleness signals impairment; zero production does not
automatically eliminate those reviews.
14. What is the sum-of-the-years’-digits denominator for a five-year useful
life?
Answer 15.
Rationale Add the years: 5 + 4 + 3 + 2 + 1 = 15, or use n(n + 1)/2 = 5 × 6/2. The
denominator is not simply the useful life of five years. The numerator starts at
five and decreases each service year.
D104 Unit 4 Practice Exam | 3
