Deck 11: Depreciation, Impairment, and Disposition

Question 1

Depreciation accounting

A)provides funds.
B)funds replacements.
C)retains funds.
D)all of these.

Answer 1

C

Question 2

If an industrial firm uses the units-of-production method for calculating depreciation on its only plant asset, factory machinery, the credit to accumulated depreciation from period to period during the life of the firm will

A)be constant.
B)vary with unit sales.
C)vary with sales revenue.
D)vary with production.

Answer 2

D

Question 3

Long-lived assets that are held for sale

A)Are not depreciated.
B)Are reported separately
C)Must be re-measured at each balance sheet date
D)All of the above

Answer 3

D

Question 4

Use of the double declining-balance method

A)results in a decreasing charge to depreciation expense.
B)means residual value is not deducted in calculating the depreciation base.
C)means the book value should not be reduced below residual value.
D)all of these.

Question 5

Which of the following best describes the concept of cash-generating units (CGU)?

A)Their cash flows are independent from those of other CGU's.
B)The individual assets that are included in the CGU do not generate cash flows on their own.
C)(a) and (b)
D)Their cash flows are not independent from those of other CGU's

Question 6

Which of the following does not describe the cost recovery model?

A)It uses undiscounted cash flows in its determination of impairment
B)It is the method used in IFRS
C)It allows the reversal of previously recognized impairment losses
D)(b) and (c)

Question 7

Hopper Company acquired machinery on January 1, 2005 which it amortized under the straight-line method with an estimated life of fifteen years and no residual value.On January 1, 2010, Hopper estimated that the remaining life of this machinery was six years with no residual value.How should this change be accounted for by Hopper?

A)As a prior period adjustment
B)As the cumulative effect of a change in accounting principle in 2010
C)By setting future annual depreciation equal to one-sixth of the book value on January
D)By continuing to amortize the machinery over the original fifteen year life

Question 8

A graph is set up with "yearly depreciation expense" on the vertical axis and "time" on the horizontal axis.Assuming linear relationships, how would the graphs for straight-line and declining-balance depreciation, respectively, be drawn?

A)Vertically and sloping down to the right
B)Vertically and sloping up to the right
C)Horizontally and sloping down to the right
D)Horizontally and sloping up to the right

Question 9

Dividends representing a return of capital to shareholders are not uncommon among companies which

A)use accelerated depreciation methods.
B)use straight-line depreciation methods.
C)recognize both functional and physical factors in depreciation.
D)none of these.

Question 10

For income statement purposes, depreciation is a variable expense if the depreciation method used is

A)units-of-production.
B)straight-line.
C)increasing charge.
D)declining-balance.

Question 11

Which of the following principles best describes the conceptual rationale for the methods of matching depreciation expense with revenues?

A)Associating cause and effect
B)Systematic and rational allocation
C)Immediate recognition
D)Partial recognition

Question 12

An asset's useful life

A)remains unchanged once it has been determined.
B)is the same as its physical life.
C)is affected by physical and economic factors.
D)all of these.

Question 13

The following is true of depreciation accounting.

A)It is not a matter of valuation.
B)It is part of the matching of revenues and expenses.
C)It retains funds by reducing income taxes and dividends.
D)All of these.

Question 14

A principal objection to the straight-line method of depreciation is that it

A)provides for the declining productivity of an aging asset.
B)ignores variations in the rate of asset use.
C)tends to result in a constant rate of return on a diminishing investment base.
D)gives smaller periodic write-offs than decreasing charge methods.

Question 15

Which of the following does not describe the rational entity model?

A)It allows the reversal of previously recognized impairment losses
B)It is the method used in private entity GAAP
C)It uses discounted cash flows in its determination of impairment
D)(a) and (c)

Question 16

Depletion expense

A)is usually part of cost of goods sold.
B)includes tangible equipment costs in the depletion base.
C)excludes intangible development costs from the depletion base.
D)excludes restoration costs from the depletion base.

Question 17

Disclosures relating to PP&E assets

A)Are identical under IFRS and private entity GAAP.
B)Are less extensive under IFRS
C)Are more extensive under private entity GAAP
D)Are less extensive under private entity GAAP

Question 18

Changes in the depreciation rate are accounted for

A)As a catch-up adjustment to prior periods
B)As an adjustment to the current period only
C)As an adjustment to current and future periods
D)None of the above

Question 19

A general description of the depreciation methods applicable to major classes of depreciable assets

A)is not a current practice in financial reporting.
B)is not essential to a fair presentation of financial position.
C)is needed in financial reporting when company policy differs from income tax policy.
D)should be included in corporate financial statements or notes thereto.

Question 20

The activity method of depreciation

A)is a variable charge approach.
B)assumes that depreciation is a function of the passage of time.
C)conceptually associates cost in terms of input measures.
D)all of these.

Question 21

Which of the following is not a time based depreciation method?

A)Productive output method
B)Straight line method
C)Double declining method
D)Sum of the years digit

Question 22

The most common method of recording depletion for accounting purposes is the

A)percentage depletion method.
B)decreasing charge method.
C)straight-line method.
D)units-of-production method.

Question 23

Depreciation should be discontinued when

A)The asset has been derecognized
B)The asset is classified as held for sale
C)The asset has been taken out of service
D)(a) and (b)

Question 24

On January 1, 2003, Selkirk Company purchased equipment at a cost of $80,000.The equipment was estimated to have a residual value of $8,000 and it is being amortized over eight years under the straight-line method.What should be the charge for depreciation of this equipment for the year ended December 31, 2010?

A)$2,000
B)$2,222
C)$4,000
D)$9,000

Question 25

Under capital cost allowance, which one of the following is not considered in determining depreciation for tax purposes?

A)Cost of the asset
B)Class of the asset
C)Half-year convention
D)Residual value

Question 26

On July 1, 2010, Jenkins Corporation purchased factory equipment for $300,000. Residual value was estimated to be $8,000.The equipment will be amortized over ten years using the double declining-balance method.Counting the year of acquisition as one-
Half year, Blenko should record depreciation expense for 2011 on this equipment of

A)$60,000.
B)$54,000.
C)$52,560.
D)$48,000.

Question 27

A plant asset has a cost of $48,000 and a residual value of $12,000.The asset has a three-year life.If depreciation in the second year amounted to $4,000, which depreciation method was used?

A)Straight-line
B)Double declining-balance
C)Activity method
D)Cannot tell from information given

Question 28

A major objective of capital cost allowance for tax depreciation is to

A)reduce the amount of depreciation deduction on business firms' tax returns.
B)assure that the amount of depreciation for tax and book purposes will be the same.
C)help companies achieve a faster write-off of their capital assets.
D)require companies to use the actual economic lives of assets in calculating tax depreciation.

Question 29

Moldowa Co.purchased machinery that was installed and ready for use on January 3, 2010, at a total cost of $115,000.Residual value was estimated at $15,000.The machinery will be amortized over five years using the double declining-balance method.
For the year 2011, Vincent should record depreciation expense on this machinery of

A)$24,000.
B)$27,600.
C)$30,000.
D)$46,000.

Question 30

The sale of a depreciable asset resulting in a loss indicates that the proceeds from the sale were

A)less than current market value.
B)greater than cost.
C)greater than book value.
D)less than book value.

Question 31

If income tax effects are ignored, accelerated depreciation methods

A)provide funds for the earlier replacement of fixed assets.
B)increase funds provided by operations.
C)tend to offset the effect of steadily increasing repair and maintenance costs on the income statement.
D)tend to decrease the fixed asset turnover ratio.

Question 32

On April 13, 2010, Kiefer Co.purchased machinery for $240,000.Residual value was estimated to be $10,000.The machinery will be amortized over ten years using the double declining-balance method.If depreciation is calculated on the basis of the nearest full month, Foley should record depreciation expense for 2011 on this machinery of

A)$41,600.
B)$40,800.
C)$41,100.
D)$41,866.

Question 33

Depreciation commences or continues when

A)The asset has been paid for.
B)The asset is available for use.
C)The asset's fair value can be recovered
D)None of the above

Question 34

Which of the following is most likely an indicator for possible asset impairment?

A)Evidence of obsolescence
B)A significant decrease of the asset's market value
C)External and internal factors
D)All of the above

Question 35

International standards require that assets must be assessed for indications of impairment

A)At the end of every quarter.
B)At the end of each reporting period.
C)Only when events and circumstances indicate that asset's carrying amount may not be recoverable.
D)Whenever the method of depreciation has changed

Question 36

The asset turnover ratio is calculated by dividing

A)net income by ending total assets.
B)net income by average total assets.
C)net sales by ending total assets.
D)net sales by average total assets.

Question 37

Private entity GAAP requires that assets must be assessed for indications of impairment

A)At the end of each reporting period.
B)At the end of every quarter.
C)When events and circumstances indicate that asset's carrying amount may not be recoverable.
D)Whenever the method of depreciation has changed

Question 38

On January 1, 2010, Mirage Company purchased a new machine for $1,400,000.The new machine has an estimated useful life of nine years and the residual value was estimated to be $50,000.Depreciation was calculated on the double declining-balance method.What amount should be shown in Storey's balance sheet at December 31, 2011, net of accumulated depreciation, for this machine?

A)$1,100,000
B)$890,000
C)$855,556
D)$846,914

Question 39

Marlowe Corporation purchased factory equipment that was installed and put into service January 2, 2010, at a total cost of $110,000.Residual value was estimated at $6,000.The equipment is being amortized over four years using the double declining-balance method.For the year 2011, Marsh should record depreciation expense on this equipment of

A)$21,000.
B)$55,000.
C)$27,500.
D)$48,000.

Question 40

Kierov Inc.purchased a building for $800,000 on January 1, 2000.At the time of acquisition, the building had an estimated residual value of $300,000 and an estimated useful life of twenty years.The company has recorded monthly depreciation using the straight-line method.On January 1, 2010, it is decided to put the building up for sale at the price of $1,200,000.At December 31, 2010, the building is still for sale.The correct depreciation to record for 2010 is

A)$25,000.
B)nil.
C)$40,000.
D)$60,000.

Question 41

On September 19, 2010, Nara Co.purchased machinery for $285,000.Residual value was estimated to be $15,000.The machinery will be amortized over eight years using the double declining-balance method.If depreciation is calculated on the basis of the nearest full month, Trane should record depreciation expense for 2011 on this machinery of

A)$66,797.
B)$65,313.
C)$53,125.
D)$52,500.

Question 42

During 2010, Sayer Co.sold equipment that had cost $206,000 for $127,600.This resulted in a gain of $9,600.The balance in Accumulated depreciation-Equipment was $660,000 on January 1, 2010, and $630,000 on December 31.No other equipment was
Disposed of during 2010.Depreciation expense for 2010 was

A)$20,000
B)$58,000
C)$59,600
D)$101,000

Question 43

Portland Corporation purchased a machine on July 1, 2007, for $250,000.The machine was estimated to have a useful life of 10 years with an estimated residual value of $14,000.During 2010, it became apparent that the machine would become uneconomical after December 31, 2014, and that the machine would have no scrap value.Accumulated depreciation on this machine as of December 31, 2009, was $59,000.What should be the
Charge for depreciation in 2010 under current GAAP?

A)$35,400
B)$38,200
C)$41,000
D)$47,750

Question 44

Magenta Company, a public corporation owns equipment for which the following year-end information is available: Which of the following best describes the proper accounting treatment for Magenta's equipment?

A)It is not impaired and a loss should not be recognized
B)It is impaired, a loss must be recognized, but may be reversed in future periods.
C)It is impaired and a loss must be recognized
D)(b) and (c)

Question 45

Consider an asset that is classified as held for sale for which the following information is available: If the asset was sold on April 1, 2011 for $27,600, there would be

A)A loss of $1,900
B)A gain of $1,900
C)A loss from discontinued operations
D)An extraordinary loss

Question 46

On January 1, 2002, Buccaro Corporation purchased for $76,000, equipment having a useful life of ten years and an estimated residual value of $4,000.Flynn has recorded monthly depreciation of the equipment on the straight-line method.On December 31, 2010, the equipment was sold for $14,000.As a result of this sale, Flynn should recognize a gain of

A)$0.
B)$2,800.
C)$6,800.
D)$14,000.

Question 47

On January 1, 2010, the Accumulated depreciation-Machinery account of a particular company showed a balance of $760,000 At the end of 2010, after the adjusting entries were posted, it showed a balance of $820,000.During 2010, one of the machines which cost $240,000 was sold for $118,000 cash.This resulted in a loss of $7,000.Assuming that no other assets were disposed of during the year, how much was depreciation expense for 2010?

A)$180,000
B)$189,000
C)$182,000
D)$175,000

Question 48

Garrison Company purchased a tooling machine on January 3, 2003 for $600,000.The machine was being amortized on the straight-line method over an estimated useful life of ten years, with no residual value.At the beginning of 2010, the company paid $150,000 to overhaul the machine.As a result of this improvement, the company estimated that the useful life of the machine would be extended an additional five years (15 years total).What should be the depreciation expense recorded for the machine in 2010?

A)$41,250
B)$50,000
C)$60,000
D)$66,000

Question 49

In 2010 K-Pac Company had net revenues, average total assets and net income of $90,000, $12,000 and $50,000 respectively.K-Pac's activity ratio for 2010 was

A)4.2
B)7.5
C)3.8
D)7

Question 50

In 2010, CopperCo Corporation purchased a mine for $200 million ($30 million were applicable to the land).An independent evaluation estimated the mine's reserves at 7.5 million tons. In 2010, CopperCo extracted 0.9 million tons.The company's depletion expense for 2010 is:

A)$24 Mill.
B)$0.2 Mill.
C)$18 Mill.
D)$20.4 Mill.

Question 51

Consider an asset for which the following information is available:

A)$500
B)$2,400
C)$3,000
D)$3,100

Question 52

On January 2, 2010, Pepper Company acquired equipment to be used in its manufacturing operations.The equipment has an estimated useful life of ten years, an estimated residual value of $22,000, and was estimated to be used 42,000 hours.The depreciation applicable to this equipment was $104,000 for 2012, calculated under the activities method after the machine was used for 5,000 hours.What was the acquisition cost of the equipment?

A)$872,400
B)$895,600
C)$873,600
D)$815,000

Question 53

Consider an impairment loss at a company that uses private entity GAAP.The required year-end journal entry includes

A)A Debit to loss on impairment and a Credit to Accumulated impairment losses.
B)A Debit to other comprehensive income and a Credit to Accumulated impairment losses.
C)A Debit to loss on impairment and a Credit to the affected asset.
D)A Debit to other comprehensive income and a Credit to the affected asset.

Question 54

Consider a company's asset that was expropriated by government authorities.The following additional information is available: Under current Canadian GAAP, this situation would be reflected in the company's financial statements as follows:

A)As an extraordinary gain of $1.8 Mill.
B)As a $1.8 Mill.gain from expropriation of assets
C)As a $1.8 Mill.gain from discontinued operations.
D)As a $1.8 Mill.gain that would be included in other comprehensive income.

Question 55

In 2010 Banko Corporation's financial statements included the following information: Banko's return on assets (ROA) for 2010 was

A)17.2%
B)21.0%
C)0.99
D)19.3%

Question 56

In January, 2010, Korro Corporation purchased a mineral mine for $5.1 million with removable ore estimated by geological surveys at 2 million tons.The property has an estimated value of $300,000 after the ore has been extracted.The company incurred $1.5 million of development costs preparing the mine for production.During 2010, 500,000 tons were removed and 400,000 tons were sold.What is the amount of depletion that Pratt should expense for 2010?

A)$960,000
B)$1,200,000
C)$1,260,000
D)$1,680,000

Question 57

Perkola, a public Corporation, owns the following equipment: The recoverable amount to be used in the determination of impairment is

A)$80,000
B)$68,000
C)$72,000
D)None of the above

Question 58

Moritz Company purchased a new machine on May 1, 2001 for $132,000.At the time of acquisition, the machine was estimated to have a useful life of ten years and an estimated residual value of $6,000.The company has recorded monthly depreciation using the straight-line method.On March 1, 2010, the machine was sold for $18,000.What should be the loss recognized from the sale of the machine?

A)$0
B)$2,700
C)$6,000
D)$8,700

Question 59

On January 3, 2010, Pankor Co.purchased machinery.The machinery has an estimated useful life of nine years and an estimated residual value of $45,000.The depreciation applicable to this machinery was $77,000 for 2012, calculated by the straight-line method.The acquisition cost of the machinery was

A)$693,000.
B)$685,000.
C)$738,000.
D)$710,000.

Question 60

Consider an asset that was separated into its main components (A, B and C).The $1,200,000 purchase price was allocated to these components in equal proportions.The useful lifes are 12, 4, and 7 years for components A, B and C respectively.Neither of the
Components (except for component C for which a $18,000 value is anticipated) is
Expected to have a residual value.Assuming straight-line depreciation, total annual depreciation expense relating to these assets is

A)$125,120
B)$190,476
C)$100,000
D)$187,905

Question 61

On June 1, 2009 Morgan manufacturer acquired a machine for $100,000 with an estimated useful life of 5 years and an estimated residual value of $10,000.The company uses the double declining method of depreciation and takes a full year's depreciation in the year of acquisition and none in the year of disposition.If the machine was disposed of for $16,000 on May 1, 2011, what amount should the loss to be recognized on disposal be?

A)$20,000
B)$26,400
C)$13,800
D)$24,000

Question 62

On January 1, 2010, Olds Company purchased a machine costing $250,000.The machine is an asset class for tax purposes with a CCA rate of 30%.It has an estimated $40,000 residual value at the end of its economic life.Assuming the company uses the capital cost allowance method, the amount of CCA deduction for tax purposes for the year
2010 is

A)$40,000.
B)$75,000
C)$37,500.
D)$35,000.