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ACCT 203 Lecture 15: Different Method of Depreciation final

31 views3 pages
27 Jul 2016
School
George Mason University
Department
Accounting
Course
ACCT 203
Professor
Harley

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Document Summary

Different method of depreciation: many times you subtract residual value from the cost of the asset before doing the depreciation. There is often a presumption that you will dispose of the asset prior to fully depreciating and that residual value is that remainder on the books when you are ready to dispose. Lets use the car example but this time you paid cash so the book value is ,000: example: car cost is. Life is 5 years therefore 4,500 depreciation per year. At end of 5 years, the book value will equal the residual value on the books. That way, if you sell the car at end of 5 years, there will still be some value which is the book value at end of 5 years. Two different methods of depreciation: straight line is most common and we have already used it. The example above is straight line: double declining balance is the only accelerated method we will discuss.

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Related Questions

Property and equipment is reported at its:

A.

historical cost.
B.

market value.
C.

book value.
D.

fair value.
E.

depreciation cost.

Uganda Corporation estimates the life of its building to be 30 years. It originally cost $300,000 and was given a residual value of $30,000. Depreciation expense per year should be:

A.

$100,000.
B.

$10,000.
C.

$300,000.
D.

$9,000.
E.

$90,000.

QUESTION 3

Western Corporation purchased a machine for $20,000 with no residual value and a life of 4 years. What is the book value of the machine at the end of Year 4?

A.

$5,000
B.

$16,000
C.

$4,000
D.

$0
E.

$20,000

QUESTION 4

The difference between the cost of an asset and its salvage value is its:

A.

historical cost.
B.

book value.
C.

fair value.
D.

depreciable base.
E.

depreciation expense.

QUESTION 5

An asset costing $50,000 with accumulated depreciation of $20,000 is sold for $25,000. What is the resulting gain or loss?

$5,000 gain

$5,000 loss

Cannot determine since salvage value is not provided in the question.

QUESTION 6

Which of the following is an example of an accelerated depreciation method?

A.

The units-of-production method
B.

The half-year convention method
C.

The fixed assets turnover method
D.

The double-declining balance method
E.

The straight-line method

QUESTION 7

Mannow Company uses the units-of-production depreciation method. Mannow purchased a machine for $80,000 with no salvage value. Mannow believes the machine will produce 400,000 units. In the first year, 90,000 units are produced. In the second year, 70,000 units are produced. What is the balance in accumulated depreciation at the end of year two?

A.

$14,000
B.

$32,000
C.

$10,000
D.

$18,000
E.

$16,000

1.On August 7, Green River InflatablesCo. paid $1,675 to purchase and install a hydraulic lift, and $40for an air filter for one of its delivery trucks.

a.Journalize the entries for the newhydraulic lift and the air filter expenditure.

b.Why are expenditures on equipment andother fixed assets sometimes capitalized (treated as an asset) andother times expensed?

2.Equipment acquired at the beginningof the year at a cost of $440,000 has an estimated residual valueof $25,000 and an estimated useful life of 8 years. Straight-linedepreciation is used. Determine (a) the total amount to bedepreciated over the life of the asset, (b) the amount ofdepreciation each year, (c) the journal entry to record the firstyear’s depreciation, (d) the book value of the asset at the end ofthe first year.

3.A tractor acquired at a cost of$275,000 has an estimated residual value of $39,000, an estimateduseful life of 40,000 hours, and was operated 2,660 hours duringthe first year. Determine (a) the total amount to be depreciatedover the life of the asset, (b) the amount of depreciation for theyear, (c) the journal entry to record the year’s depreciation, (d)the book value of the asset at the end of the first year, (e)explain why units of output may be preferred overstraight line as a method of depreciating the tractor.

4. Equipment acquired at the beginning of the year at a cost of$280,000 has an estimated residual value of $45,000 and anestimated useful life of 16 years. Determine: (a) thedouble-declining-balance rate, (b) the double-declining-balancedepreciation for the first year, (c) the journal entry to recordthe first year’s depreciation, (d) the book value at the end of thefirst year, (e) explain the advantages double-declining-balance may have over straight line in depreciatingassets.

5. A truck with a cost of $82,000 has an estimated residualvalue of $16,000, an estimated useful life of 12 years, and isdepreciated by the straight-line method. (a) Determine the amountof the annual depreciation, (b) Assuming that at the start of theeighth year the remaining life is estimated to be six years and theresidual value is estimated to be $12,000, determine thedepreciation expense for each of the remaining six years, (c)explain why depreciation is recalculated in situations likethis.

6. Equipment was acquired at the beginning of the year at a costof $465,000. The equipment was depreciated using the straight-linemethod based on an estimated useful life of 15 years and anestimated residual value of $45,000.

What was the depreciation for the first year?

Assuming the equipment was sold at the end of the eighth yearfor $235,000, determine the gain or loss on the sale of theequipment.

Journalize the entry to record the sale.

7. Glacier Mining Co. acquired mineral rights for $494,000,000.The mineral deposit is estimated at 475,000,000 tons. During thecurrent year, 31,500,000 tons were mined and sold.

Determine the depletion rate.

Determine the amount of the depletion expense for the currentyear.

Journalize the adjusting entry on December 31 to record thedepletion expense.

Why is depletion taken on mineral rights?

8. On December 31, it was estimated that goodwill of $6,000,000was impaired. In addition, a patent with an estimated usefuleconomic life of 12 years was acquired for $1,500,000 on April1.

Journalize the adjusting entry on December 31 for the impairedgoodwill.

What is goodwill?

What does it mean for goodwill to be impaired?

Journalize the adjusting entry on December 31 for theamortization of the patent rights.

Why are patents and other intangible assets amortized?

5. Archie Co. purchased a framing machine for $45,000 on January 1, 2018. The machine is expected to have a four-year life, with a residual value of $5,000 at the end of four years.


Using the straight-line method, depreciation for 2019 and book value at December 31, 2019, would be:

a. $10,000 and $20,000

b. $10,00 an $25,000

c. $11,250 and $17,500

d. $11,250 and $22,500

6. On September 30, 2018, Bricker Enterprises purchased a machine for $200,000. The estimated service life is 10 years with a $20,000 residual value. Bricker records partial-year depreciation based on the number of months in service.


Depreciation for 2018, using the double-declining balance method, would be:

a. $40,000

b. $10,000

c. $36,000

d. $9,000

7. An asset was acquired on January 1, 2018, for $15,000 with an estimated 4-year life and $1,000 residual value. The company uses straight-line depreciation. Calculate the gain or loss if the asset was sold on December 31, 2020, for $5,000.

a. $500 gain

b. $3,000 loss

c. $1,500 gain

d. $500 loss

8. On January 1, 2018, Tabitha Designs purchased a patent giving it exclusive rights to manufacture a new type of synthetic clothing for $240,000. While the patent had a remaining legal life of 15 years at the time of purchase, Tabitha expects the useful life to be only eight more years. In addition, Tabitha purchase equipment related to production of the new clothing for $140,000. The equipment has a physical life of 10 years but Tabitha plans to use the equipment only over the patent’s service life and then sell it for an estimated $20,000. Tabitha uses straight-line for all long-term assets. The amount to expense in 2021 related to the patent and equipment should be:

a. $40,000

b. $38,000

c. $45,000

d. $31,000

9. Russell Enterprises acquired a franchise from Michael Incorporated for $300,000. The franchise agreement is for a period of six years. Russell uses straight-line to amortize all intangible assets. What would be the reported book value of the franchise two years after the purchase?

a. $300,000

b. $250,000

c. $200,000

d. $100,000

10. Herman Apparel has purchased equipment on January 1, 2015, for $560,000. In 2015-2017, Herman depreciated the asset on a straight-line basis with an estimated useful life of eight years and a $80,000 residual value. In 2018, Herman has started to change its business strategy and now believes that the equipment will be used for only another two years (five years total) but does not believe the residual value has changed. What depreciation would Herman record for the year 2018 on this equipment?

a. $150,000

b. $175,000

c. $124,000

d. $ 96,000