Chapter 11, Depreciation, Impairments, and Depletion Video Solutions, Problem Solving Survival Guide to accompany Intermediate Accounting (Volume 1, Chapters 1 - 14)

Problem 1

The term "depreciable cost," or "depreciable base," as it is used in accounting, refers to:
a. the total amount to be charged (debited) to expense over an asset's useful life.
b. cost of the asset less the related depreciation recorded to date.
c. the estimated market value of the asset at the end of its useful life.
d. the acquisition cost of the asset.

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Problem 2

A machine is purchased by the Dunnagin Company for $$\$ 18,000$$. Dunnagin pays $$\$ 6,000$$ in cash and gives a note payable for $$\$ 12,000$$ that is payable in installments over a four-year period. Dunnagin estimates that the machine could physically last for 12 years, even though Dunnagin expects to use it in its business for only 9 years. The period of time to be used by Dunnagin for depreciation purposes is:
a. 4 years.
b. 5 years.
c. 9 years.
d. 12 years.

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03:49

Problem 3

A machine with an estimated service life of five years and an expected salvage value of $$\$ 5,000$$ was purchased on January 1,2014 for $$\$ 50,000$$. The amount to be recorded for depreciation for 2014, 2015, and 2016, respectively, using the sum-of-the-years'-digits method will be:
a. $$\$ 20,000 ; \$ 12,000 ; \$ 7,200$$.
b. $$\$ 16,667 ; \$ 13,333 ; \$ 10,000$$.
c. $$\$ 15,000 ; \$ 12,000 ; \$ 9,000$$.
d. $$\$ 15,000 ; \$ 8,000 ; \$ 4,400$$.

Christy Galilei

Numerade Educator

03:49

Problem 4

A machine with an estimated service life of five years and an expected salvage value of $$\$ 5,000$$ was purchased on January 1,2014 , for $$\$ 50,000$$. The amount to be recorded for depreciation for years 2014,2015 , and 2016 , respectively, using the $200 \%$ declining-balance method will be:
a. $$\$ 20,000 ; \$ 12,000 ; \$ 7,200$$.
b. $$\$ 18,000 ; \$ 10,800 ; \$ 6,480$$.
c. $$\$ 16,667 ; \$ 13,333 ; \$ 10,000$$.
d. $$\$ 10,000 ; \$ 8,000 ; \$ 6,400$$.

Christy Galilei

Numerade Educator

04:59

Problem 5

Salvage (residual) value may or may not be used in computing depreciation expense in the early years of an asset's life. Net income is understated if, in the first year, estimated salvage value is excluded from the depreciation computation when using the:
$$
\begin{array}{lcc}
& \text { Units of Output Method } & \text { Sum-of-the-Years'-Digits Method } \\
\text { a. } & \text { Yes } & \text { Yes } \\
\text { b. } & \text { No } & \text { No } \\
\text { c. } & \text { No } & \text { Yes } \\
\text { d. } & \text { Yes } & \text { No }
\end{array}
$$

Harmender Singh Yadav

Numerade Educator

Problem 6

A machine was purchased for $$\$ 8,000,000$$ on January 1,2014 . It has an estimated useful life of 8 years and a residual value of $$\$ 800,000$$. Depreciation is being computed using the sum-of-the-years'-digits method. What amount should be shown for this machine, net of accumulated depreciation, in the company's December 31, 2015 balance sheet?
a. $$\$ 4,200,000$$
b. $$\$ 5,000,000$$
c. $$\$ 6,300,000$$
d. $$\$ 6,600,000$$

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03:16

Problem 7

Tammy Corporation purchased a machine on July 1,2014 for $$\$ 900,000$$. The machine has an estimated life of five years and a salvage value of $$\$ 120,000$$. The machine is being depreciated by the $150 \%$ declining-balance method. What amount of depreciation should be recorded for the year ended December 31, 2015 ?
a. $$\$ 229,500$$
b. $$\$ 198,900$$
c. $$\$ 189,000$$
d. $$\$ 163,800$$

Narayan Hari

Numerade Educator

Problem 9

A plant asset with a five-year estimated useful life and no salvage value is sold during the second year of the asset's life. How would the use of the straight-line method of depreciation instead of an accelerated depreciation method affect the amount of gain or loss on the sale of the plant asset?
$$
\begin{array}{lll}
& \text { Gain } & \text { Loss } \\
\text { a. } & \text { Increase } & \text { Decrease } \\
\text { b. } & \text { Decrease } & \text { Increase } \\
\text { c. } & \text { No Effect } & \text { Increase } \\
\text { d. } & \text { No Effect } & \text { No Effect }
\end{array}
$$

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Problem 9

Roberts Truck Rental uses the group depreciation method for its fleet of trucks. When it retires one of its trucks and receives cash from a salvage company, the carrying value of property, plant, and equipment will be decreased by the:
a. original cost of the truck.
b. original cost of the truck less the cash proceeds.
c. cash proceeds received.
d. cash proceeds received and original cost of the truck.

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01:56

Problem 10

Which of the following uses a straight-line depreciation calculation?
$$
\begin{array}{lcc}
& \text { Group Depreciation } & \text { Composite Depreciation } \\
\text { a. } & \text { Yes } & \text { Yes } \\
\text { b. } & \text { Yes } & \text { No } \\
\text { c. } & \text { No } & \text { Yes } \\
\text { d. } & \text { No } & \text { No }
\end{array}
$$

Zach Steedman

Numerade Educator

Problem 11

The Schoen Company purchased a piece of equipment at the beginning of 2004 for $$\$ 60,000$$. The equipment was being depreciated using the straight-line method over an estimated life of 20 years, with no salvage value. At the beginning of 2014, when the equipment had been in use for 10 years, the company paid $$\$ 10,000$$ to overhaul the equipment. As a result of this improvement, the company estimates that the useful life of the equipment will be extended an additional five years. What should be the depreciation expense for this equipment in 2014 ?
a. $$\$ 2,000$$
b. $$\$ 2,667$$
c. $$\$ 3,000$$
d. $$\$ 1,867$$

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Problem 12

As the result of certain changes in circumstances indicating that the carrying amount of plant assets may not be recoverable, Timberlake Company reviewed the assets at the end of 2014 for impairment. The company estimates that it will receive net future cash inflows of $$\$ 85,000$$ (undiscounted) as a result of continuing to hold and use these assets. The fair value of the assets at December 31,2014 is estimated to be $$\$ 75,000$$. The assets were acquired two years ago at a cost of $$\$ 500,000$$ and have been depreciated using the straight-line method and a five-year service life. The loss from impairment to be reported at the end of 2014 is:
a. $$\$ 0$$.
b. $$\$ 215,000$$.
c. $$\$ 225,000$$.
d. $$\$ 300,000$$.

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Problem 13

The book value of a plant asset is:
a. the fair market value of the asset at a balance sheet date.
b. the asset's acquisition cost less the total related depreciation recorded to date.
c. equal to the balance of the related accumulated depreciation account.
d. the assessed value of the asset for property tax purposes.

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Problem 14

The rate of return on assets (ROA) can be computed by which of the following computations?
1. $\frac{\text { Net income }}{\text { Net sales }}$
2. $\frac{\text { Net sales }}{\text { Average total assets }}$
3. Profit margin on sales $x$ Asset turnover
4. $\frac{\text { Net income }}{\text { Average total assets }}$
a. Formula 1.
b. Formula 2.
c. Formula 3.
d. Formula 4.
e. Formula 3 or 4 .

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