Chapter 11—Depreciation and Depletion Key
1. Which one of the following statements is not true?
2. The service life of an asset may be measured by all of the following except
3. Which one of the following is not a factor that limits the service life of an asset?
4. The factors involved in computing periodic depreciation charges for an asset do not include the
5. Which of the following is not a factor in selecting a depreciation method?
6. When the expected cost to dismantle and remove an asset exceeds the expected selling price of a depreciable
asset, the difference is
7. Depreciation of an asset based on the number of hours of usage is a(n)
8. Which of the following depreciation methods should be used when the expected benefits to be received from
an asset will decline each period?
9. Which depreciation method ignores residual value when computing the depreciable base of an asset?
10. Which depreciation method calculates annual depreciation expense based on the book value of an asset?
11. Many companies that use the declining-balance method of depreciation switch to the straight-line method at
what point in the life of a depreciable asset?
12. Which depreciation method cannot be used when the residual value is zero?
13. Which one of the following statements is true?
14. Exhibit 11-1
On January 1, 2010, Hills purchased equipment for $200,000. The equipment had an estimated useful life of ten
years and an estimated residual value of $40,000. Use the double-declining-balance method to answer the
following question(s).
Refer to Exhibit 11-1. How much depreciation should Hills record on the asset in 2010?
15. Exhibit 11-1
On January 1, 2010, Hills purchased equipment for $200,000. The equipment had an estimated useful life of ten
years and an estimated residual value of $40,000. Use the double-declining-balance method to answer the
following question(s).
Refer to Exhibit 11-1. How much depreciation should Hills record on the asset in 2011?
16. Exhibit 11-1
On January 1, 2010, Hills purchased equipment for $200,000. The equipment had an estimated useful life of ten
years and an estimated residual value of $40,000. Use the double-declining-balance method to answer the
following question(s).
Refer to Exhibit 11-1. What is the net book value of this asset that Hills should report on the company’s
balance sheet at December 31, 2011?
17. The Zorro Company purchased equipment on January 1, 2010, for $100,000. The equipment had an
estimated residual value of $10,000, an estimated useful life of five years, and estimated lifetime output of
18,000 units. In 2011, the company produced 4,400 units and recorded depreciation expense of $22,000. What
depreciation method did the company use?
18. Worth Manufacturing Company purchased a new production machine on July 1, 2010, for $140,000. The
estimated salvage value is $10,000. The company uses units-of-production depreciation and estimates the
machine will produce 100,000 units during its useful life. In 2010, the company manufactured 5,000 units after
acquiring the machine. Depreciation expense for 2010 will be
19. On January 1, 2010, Lefler, Inc. purchased a machine for $6,000. The estimated life and residual value were
five years and $150, respectively. The machine will produce approximately 80,000 units over its life. In 2010
and 2011, the machine produced 10,000 and 15,000 units, respectively. In 2011, Lefler recorded $1,440 of
depreciation expense. The depreciation method in use was the
20. The Charleston Company purchased a truck on January 1, 2010. The truck cost $36,000 and was expected to
have a residual value of $4,000 at the end of 2017. Charleston uses the 150%-declining-balance depreciation
method. What amount of depreciation should Charleston record on the truck in 2010?
21. The Ancira Co. acquired a machine on May 1, 2010, at a cost of $60,000. The machine is expected to have a
ten-year life and a residual value of $5,000. The estimated lifetime output from the machine is expected to be
55,000 units. Under which of the following depreciation methods would the depreciation charge be the greatest
in 2010 if 9,100 units were produced during the year?
22. Madison Industries uses the straight-line depreciation method. One asset had been purchased for $9,000.
Annual depreciation expense was $800 after considering residual value of $1,000. What was the approximate
life of the asset?
23. On January 1, 2010, Frommer, Inc. purchased an asset for $32,000. It was estimated that the asset life was
seven years, after which it would have a residual value of $2,100. Assuming the use of the
sum-of-the-years’-digits method, depreciation expense for 2010 would be
24. On January 1, 2010, Pinnacle purchased an asset that had an estimated residual value of $700 after an
economic life of four years. Pinnacle used sum-of-the-years’-digits depreciation and recorded $1,560 of
depreciation expense in 2012. What was the cost of the asset?
25. The Cardell Company purchased a machine on January 2, 2010, at a cost of $1,200,000. The machine had
an estimated useful life of eight years and a residual value of $120,000. Cardell computes depreciation by the
sum-of-the-years’-digits method. What amount, net of accumulated depreciation, will appear on the company’s
December 31, 2012, balance sheet for this machine?
26. What effect does depreciation have on the calculation of the rate of return on total assets?
27. A student is defending a certain depreciation method. She uses the argument that repairs and maintenance
costs will probably increase as the asset gets older. She also argues that the asset will produce less as it gets
older. What depreciation method is she probably defending?
28. Which one of the following statements is true?
29. Related to accounting for the impact of inflation on fixed assets, GAAP requires
30. Which one of the following statements is not true regarding depreciation?
31. Which one of the following disclosures is required by generally accepted accounting principles?
32. Which one of the following statements is true?
33. Which one of the following statements is not a disclosure requirement for depreciation?
34. When low-cost depreciable assets with similar characteristics, service lives, and residual values are
acquired, which depreciation method should be used?
35. A company purchased ten delivery vehicles at a cost of $20,000 each and used the group depreciation
method. Which of the following entries would be correct when recording the subsequent sale of an individual
computer for $8,500 (group accumulated depreciation is $88,000)?
36. Metzger, Inc. purchased ten portable heating units for $5,000 each, with an average expected service life of
four years and a residual value of $700 each. The depreciation rate for the assets, assuming the group
depreciation method is used, will be
37. Willard Business Services purchased three assets with the following characteristics:
Residual
Asset
Cost
Value
Life
Photocopier
$12,000
$2,000
10 years
Computer
6,800
1,200
4 years
Typewriter
1,500
250
5 years
Assuming Willard uses straight-line depreciation, the composite depreciation rate is
38. Which one of the following statements is an advantage of the group and composite methods of
depreciation?
39. Depreciation expense under the inventory system is
40. Five trucks costing $20,000 each were purchased by the Burns Company at the beginning of 2010. Burns
capitalized the trucks in a single asset account and depreciates them using the group method. Each truck was
expected to have a residual value of $6,000 in four years. At the end of 2013, Burns sold one truck for $8,000.
For what amount is accumulated depreciation debited in the journal entry to record the disposal of that truck?
41. Which one of the following statements about group depreciation is true?
42. On January 1, 2010, Mulligan Co. began using the composite depreciation method. There were three
machines to consider, as follows:
Residual
Asset
Cost
Value
Life
A
$20,000
$2,000
6 years
B
15,000
3,000
3 years
C
5,000
1,000
4 years
At the end of the second year, Machine B was sold for $8,200. In the entry to record the sale, there should be a
43. On January 1, 2010, Montana Co. purchased five machines at a price of $10,000 per machine. Because the
estimated life was five years and no salvage value was expected, a group depreciation rate of 20% was used. On
January 1, 2012, one of the machines was sold for $5,000. The correct entry to record the sale of the machine is
44. On January 1, 2010, Digger purchased some equipment for $19,600. The anticipated life of the equipment
was five years and residual value was estimated to be $3,100. The machine was expected to produce 600,000
units. In January of 2010, 25,000 units were produced and production was doubled in February. The company
uses the activity depreciation method. What is the amount of depreciation expense for the month of February?
45. Smith has a fiscal year-end of December 31. Smith purchased a piece of equipment for $12,000 in February
with a four-year useful life and a zero residual value. Smith used the equipment to produce finished goods in
March that were sold on credit in April with cash collected in May. Smith uses straight-line depreciation. The
amount of depreciation expense affecting the reported income on the first quarter income statement was
46. Weaver Co. purchased $40,000 of equipment with a salvage value of $5,000 and a useful life of nine years
on August 15, 2010. If the company used sum-of-the-years’-digits depreciation computed to the nearest whole
year, depreciation expense for 2011 was
47. Battle Co. purchased a new truck for $36,000 on June 1, 2010, with a useful life of eight years and a
residual value of $4,800. If the company used double-declining-balance depreciation computed to the nearest
whole year, depreciation expense for 2011 was
48. Brady’s purchased a piece of equipment for $30,000 with a useful life of nine years and a residual value of
$6,000 on January 2, 2010. If Brady’s used the sum-of-the-years’-digits method with the half-year convention,
depreciation expense for 2010 was
49. On July 1, 2010, United Stereo purchased camera equipment for $5,000. The estimated life of the equipment
was ten years and the residual value was estimated to be $2,000. Double-declining-balance depreciation was
used. If calculations are based on the nearest whole month, depreciation expense for the year 2012 was
50. On July 9, 2010, Marcus Company purchased an asset for $18,000. Marcus estimated a four-year life and no
salvage value. Marcus uses sum-of-the-years’-digits depreciation to the nearest whole month. Depreciation
expense for 2013 will be
51. Karen Co. computes depreciation to the nearest whole month and uses the straight-line method. On April 2,
2010, the company purchased an asset for $14,000 with a four-year life and a $2,000 residual value. On
November 6, Karen also sold an asset with a cost of $34,500 that had been purchased in 2008. The sold asset
had been estimated to have a five-year life and no residual value when it was purchased. The depreciation
expense on these two assets for 2010 totals
52. On June 15, 2010, Jumper Corporation purchased a truck for $50,000 with an estimated useful life of six
years and a residual value of $8,000. The company uses units-of-production depreciation and estimates the
truck will last 300,000 miles. The truck was driven 20,000 miles in 2010 and 60,000 miles in 2011. The
accumulated depreciation balance on December 31, 2011, after the adjusting entries have been posted should
be
53. Exhibit 11-2
Bryan purchased a business computer for $4,500 on August 3, 2010. It has an estimated residual value of $500
and an expected service life of five years. Bryan uses double-declining-balance depreciation computed to the
nearest whole month.
Refer to Exhibit 11-2. Depreciation expense for 2010 was
54. Exhibit 11-2
Bryan purchased a business computer for $4,500 on August 3, 2010. It has an estimated residual value of $500
and an expected service life of five years. Bryan uses double-declining-balance depreciation computed to the
nearest whole month.
Refer to Exhibit 11-2. Depreciation expense for 2011 should be
55. Exhibit 11-2
Bryan purchased a business computer for $4,500 on August 3, 2010. It has an estimated residual value of $500
and an expected service life of five years. Bryan uses double-declining-balance depreciation computed to the
nearest whole month.
Refer to Exhibit 11-2. The accumulated depreciation balance at December 31, 2011, should be
56. Property, plant, and equipment must be reviewed for impairment when which one of the following events
occurs?
57. When conducting an impairment test, a company must estimate
58. An impairment loss must be recognized when an asset’s
59. Once an asset is impaired,
60. The FASB established principles for evaluating asset impairment because it hoped financial reporting
would
61. The income tax savings from annual depreciation expense is calculated as
62. The MACRS differs from straight-line depreciation computed for financial reporting. In this respect, which
of the following is not true?
63. Which one of the following statements is not true?
64. Which one of the following statements does not require any adjustment to a company’s accounts?
65. The Pecan Street Ice Cream Company discovers that depreciation expense was overstated last year. How
should this discovery be reported in the current year?
66. Redeau Company has been depreciating certain assets using the straight-line method. At the beginning of
the current year, the company changed to the sum-of-the-years’-digits method to depreciate these assets. Which
of the following statements regarding this change is true?
67. On January 1, 2010, Danville Corporation acquired a machine at a cost of $60,000. The machine’s service
life was estimated to be ten years and its residual value to be $6,000. The straight-line method was used for
depreciation. On January 1, 2015, the machine’s remaining service life was estimated at eight years and its
residual value at $3,000. For 2015, in regard to this machine, Danville should record depreciation of
68. Which one of the following statements is true?
69. On January 1, 2010, Wheeler, Inc. purchased some equipment for $3,900. The equipment had an estimated
life of five years and an expected residual value of $200. On January, 1, 2012, the estimated total economic life
from the original purchase date was changed to six years and the estimated residual value was increased to
$300. What is the amount of depreciation expense for the year 2012?
70. Depletion of a natural resource is typically recorded as a
71. Tangible assets that are attached to natural resources are depreciated over
72. Which of the following methods provides a tax deduction that exceeds the cost of an asset less its expected
residual value?
73. PZ Co. paid $9,000 for some land that was expected to have 50,000 units of a natural resource on it.
Development costs amounted to $520. It was expected that the land would require $780 of reclamation costs
after production. In the first year of mining, 5,000 units of the natural resource were mined. At the beginning of
the second year, it was estimated that only 40,000 units of the natural resource remained and estimated
reclamation costs should be increased to $960. In the second year, 8,000 units were mined. What was the
amount of depletion for the second year?
74. In 2010, Westmoreland Company paid $3,000,000 for a mining tract with reserves of 100,000 tons of ore,
which the company planned to mine over a 20-year period. The company spent $500,000 developing the mine.
Westmoreland plans to spend $200,000 for reclamation when mining has been completed, after which the land
will have an estimated value of $600,000. In 2010, Westmoreland mined and sold 8,000 tons of ore. What
depletion should Westmoreland record for the year?
75. Which one of the following statements is not true?
76. Which one of the following statements on IFRS is not true?