23) The journal entry to record depreciation expense is:
A) debit Depreciation Expense, credit the asset account.
B) debit Accumulated Depreciation, credit the asset account.
C) debit the asset account, credit Accumulated Depreciation.
D) debit Depreciation Expense, credit Accumulated Depreciation.
24) As a plant asset is used in operations:
A) accumulated depreciation increases and the book value of the asset increases.
B) accumulated depreciation increases and the book value of the asset decreases.
C) accumulated depreciation remains the same and the book value of the asset decreases.
D) accumulated depreciation increases and the book value of the asset remains the same.
25) When computing depreciation using the units–of-production method:
A) a variable amount of depreciation is assigned to each unit of output.
B) a fixed amount of depreciation is assigned to each unit of output.
C) the depreciation expense depends directly on the amount of output or usage.
D) B and C.
26) Which of the following is an accurate statement regarding financial statement and income tax
depreciation methods?
A) Straight-line depreciation is the most popular method for income tax purposes.
B) The IRS has its own set of rules to compute depreciation for income tax purposes.
C) The Modified Accelerated Cost Recovery System can be used for both financial statement and
income tax purposes.
D) If an accelerated depreciation method is used for income tax purposes, a company will pay more in
income taxes.
27) When a plant asset is fully depreciated:
A) the asset’s accumulated depreciation is higher than the historical cost of the asset.
B) the book value is equal to the salvage value.
C) the depreciable cost is equal to the estimated residual value, and the asset is of no further use to the
company.
D) the book value is zero and the asset has no market value.
28) When using straight-line depreciation to compute depreciation for a partial year:
A) compute depreciation for a full year under straight-line depreciation and multiply it by 50%.
B) compute depreciation for a full year under straight–line depreciation and use that amount.
C) the straight-line method automatically adjusts for partial periods, so no adjustments are needed.
D) compute depreciation for a full year under straight–line depreciation and multiply it by the fraction
of the year that you held the asset.
29) On January 2, 2017, Konrad Corporation acquired equipment for $760,000. The estimated life of the
equipment is 5 years or 37,000 hours. The estimated residual value is $20,000. If Konrad Corporation
uses the units of production method of depreciation, what will be the debit to Depreciation Expense for
the year ended December 31, 2018, assuming that during this period, the asset was used 5000 hours?
A) $102,703
B) $148,000.00
C) $100,000.00
D) $105,405
30) On January 2, 2017, Kaiman Corporation acquired equipment for $700,000. The estimated life of the
equipment is 5 years or 100,000 hours. The estimated residual value is $10,000. What is the balance in
Accumulated Depreciation on December 31, 2018, if Kaiman Corporation uses the straight-line method
of depreciation?
A) $140,000
B) $138,000
C) $276,000
D) $280,000
31) On January 2, 2017, Kellogg Corporation acquired equipment for $800,000. The estimated life of the
equipment is 5 years or 80,000 hours. The estimated residual value is $10,000. What is the book value of
the asset on December 31, 2018, if Kellogg Corporation uses the straight-line method of depreciation?
(Round any intermediary calculations to two decimal places and your final answer to the nearest
dollar.)
A) $642,000
B) $484,000
C) $800,000
D) $790,000
32) On January 2, 2017, Kornis Corporation acquired equipment for $800,000. The estimated life of the
equipment is 5 years or 100,000 hours. The estimated residual value is $30,000. What is the balance in
Accumulated Depreciation on December 31, 2017, if Kornis Corporation uses the double-declining-
balance method of depreciation?
A) $154,000
B) $160,000
C) $308,000
D) $320,000
33) On January 2, 2017, Konan Corporation acquired equipment for $300,000. The estimated life of the
equipment is 5 years or 100,000 hours. The estimated residual value is $40,000. What is the balance in
Accumulated Depreciation on December 31, 2018, if Konan Corporation uses the double-declining-
balance method of depreciation? (Round any intermediary calculations to two decimal places and your
final answer to the nearest dollar.)
A) $192,000
B) $104,000
C) $72,000
D) $260,000
34) On January 4, 2017, Margaret’s Cafe acquired equipment for $265,000. The estimated life of the
equipment is 4 years or 42,500 hours. The estimated residual value is $10,000. What is the depreciation
for 2017, if Margaret’s Cafe uses the asset 14,300 hours and uses the units-of-production method of
depreciation?
A) $63,750
B) $85,800
C) $10,000
D) $66,250
35) On January 4, 2017, Mary’s Cafe acquired equipment for $700,000. The estimated life of the
equipment is 8 years or 60,000 hours. The estimated residual value is $60,000 What is the balance in the
Accumulated Depreciation account at December 31, 2018 if the straight-line method is used?
A) $60,000
B) $87,500
C) $160,000
D) $80,000
36) On January 2, 2016, Saminski, Inc., acquired equipment for $300,000. The estimated life of the
equipment is 5 years. The estimated residual value is $30,000. What is the Accumulated Depreciation of
the equipment on December 31, 2017, if Saminski uses the double–declining-balance method of
depreciation? (Round intermediary calculations to two decimal places and your final answer to the
nearest dollar.)
A) $108,000
B) $120,000
C) $270,000
D) $192,000
37) On January 2, 2017, Mumford Corporation acquired equipment for $70,000. The estimated life of the
equipment is 4 years. The estimated residual value is $8000. What is the amount of depreciation expense
for 2018, if the company uses the double-declining-balance method of depreciation? (Round
intermediary calculations to two decimal places and your final answer to the nearest dollar.)
A) $15,500
B) $17,500
C) $31,000
D) $35,000
38) On January 2, 2016, Helmkamp Company purchased a $20,000 machine. It had an estimated useful
life of 5 years and a residual value of $2000. What is the amount of depreciation expense for 2017, the
second year of the asset’s life, using the double declining–balance method? (Round intermediary
calculations to two decimal places and your final answer to the nearest dollar.)
A) $4000
B) $4800
C) $3600
D) $8000
39) Martin Company paid $500,000 for equipment. Martin uses straight-line depreciation. Currently the
Accumulated Depreciation account shows a balance of $200,000. If the asset has no residual value and
an estimated life of 10 years, how many years has the asset been depreciated? (Round your final answer
to the nearest year.)
A) 3
B) 7
C) 4
D) 10
40) Income before depreciation and taxes amounts to $200,000. Using straight-line depreciation, the
current year’s depreciation expense will be $11,000. Using double-declining-balance depreciation, the
current year’s depreciation expense will be $18,000. Assuming a tax rate of 30%, what is the net cash
saved in income taxes by using double-declining-balance depreciation over straight-line depreciation?
A) $2100
B) $3300
C) $7000
D) $5400
41) Roho Company acquired equipment on July 1, 2016, for $700,000. The residual value is $20,000 and
the estimated life is 5 years or 40,000 hours. Compute the depreciation expense for the years ending
December 31, 2016 and December 31, 2017 if Roho Company uses the double-declining-balance method
of depreciation.
A) $280,000 for 2016; $168,000 for 2017
B) $140,000 for 2016; $224,000 for 2017
C) $134,000 for 2016; $226,400 for 2017
D) $67,000 for 2016; $134,000 for 2017
42) Lorenzo Corporation purchased equipment on January 1, 2016 for $600,000. The equipment had an
estimated useful life of 5 years and an estimated salvage value of $10,000. After using the equipment for
2 years, the company determined that the equipment could be used for an additional 6 years and have a
salvage value of $2000. Assuming Lorenzo Corporation uses straight-line depreciation, compute
depreciation expense for the year ending December 31, 2018. (Round your final answer to the nearest
dollar.)
A) $236,000
B) $60,667
C) $60,333
D) $118,000
43) Marjorie Corporation acquired a building on January 1, 2016, for $700,000. The building had an
estimated useful life of 20 years and an estimated salvage value of $29,000. On January 1, 2018, Marjorie
Corporation determined that the building could only be used for another 10 years and there would be
no salvage value. Compute depreciation expense for the year ending December 31, 2018, if Marjorie
Corporation uses straight-line depreciation.
A) $33,550
B) $100,650
C) $63,290
D) $67,100
44) Cramer Company purchased equipment on May 1, 2017 for $600,000. The residual value is $60,000
and the estimated useful life is 10 years. What is the Depreciation Expense for the year ending
December 31, 2017, if the company uses the straight-line method? (Round your final answer to the
nearest dollar.)
A) $40,000
B) $36,000
C) $60,000
D) $54,000
45) Jerry Willis Company purchased equipment on May 1, 2017 for $100,000. The residual value is
$15,000 and the estimated useful life is 10 years. What is the Depreciation Expense for the year ending
December 31, 2017, if the company uses the double-declining-balance method? (Round your final
answer to the nearest dollar.)
A) $10,000
B) $13,333
C) $20,000
D) $8500
46) Gary Kraen Company purchased equipment on May 1, 2017 for $100,000. The residual value is
$25,000 and the estimated useful life is 10 years. What is the Depreciation Expense for the year ending
December 31, 2018, if the company uses the double-declining-balance method? (Round your final
answer to the nearest dollar.)
A) $13,333
B) $10,000
C) $17,333
D) $7500
47) Which statement is FALSE?
A) Depreciation is caused by the physical wear and tear of a plant asset.
B) Depreciation is caused by obsolescence of a plant asset.
C) Depreciation is not based on changes in the market value of a plant asset.
D) Accumulated depreciation is a cash fund to be used to replace a plant asset when it wears out.
48) On January 1, 2017, a machine has a remaining book value of $5100. The residual value of the
machine is $1200. The company uses the double-declining-balance method of depreciation. If 2017 is the
last year for depreciation, what is Depreciation Expense for the year ending December 31, 2017?
A) $0
B) $1200
C) $3900
D) $5100
49) For a plant asset that generates revenue evenly over time, which depreciation method best meets the
expense recognition principle?
A) straight-line
B) double-declining-balance
C) modified accelerated
D) units-of-production
50) For a plant asset that wears out because of physical use rather than obsolescence, which depreciation
method best meets the expense recognition principle?
A) straight-line
B) double-declining-balance
C) modified accelerated
D) units-of-production
51) Weaver Motors purchased a machine that will help diagnose problems with engines. The machine
cost $300,000 on January 3, 2017 and had a residual value of $30,000, with a useful life of 6 years.
Required:
Calculate the depreciation expense and book value as of December 31, 2017 under both the straight-line
and double-declining-balance methods.
33
52) Carrie Heffernan Company purchased a delivery van on January 1, 2016, for $50,000. The van was
expected to remain in service 4 years (or 100,000 miles) and has a residual value of $5,000. The van
traveled 30,000 miles the first year, 25,000 miles the second year, and 22,500 miles in the third and
fourth years.
Required:
1. Prepare a schedule of depreciation expense per year for the first four years of the asset’s life using the
(a) straight-line method, (b) units-of–production method, and (c) double-declining-balance method.
2. Prepare a schedule of the book value of the van for each of the four years using the (a) straight-line
method, (b) units-of-production method and (c) double-declining-balance method.
53) A machine costing $40,000 was purchased on January 1, 2017. It has an estimated useful life of 5
years and a salvage value of $5,000.
Required:
1. Calculate depreciation expense for 2017 and 2018 using (a) straight-line rate, and (b) double–
declining-balance method.
2. Determine the book value of the machine at December 31, 2018 under the (a) straight-line method and
(b) double-declining-balance method.
54) A plant asset is acquired by a business on January 1, 2016, for $100,000. The asset’s estimated
residual value is $10,000 and its estimated life is 5 years. Management chooses to use straight-line
depreciation.
On January 1, 2018, management revises the total useful life to 8 years and the residual value to $5,000.
Required:
1. Compute the balance in Accumulated Depreciation on January 1, 2018.
2. Compute the Depreciation Expense for the year ending December 31, 2018.
3. Compute the balance in Accumulated Depreciation on December 31, 2018.
4. Prepare the adjusting journal entry on December 31, 2018 for the year. Omit the explanation.
55) On January 1, 2016, Williams Company, Inc. purchased machinery for $350,000 and depreciated it
on a straight-line basis over 20 years. The estimated residual value was zero. On January 1, 2019, the
company realized the machine will remain useful for only 5 more years and also revised the residual
value to $12,000.
Required:
1. What is the depreciation expense per year before the change in estimate?
2. What is the revised depreciation expense per year?
3. Prepare the adjusting journal entry for the year ending December 31, 2019. Omit the explanation.
56) Martindale Motors purchased a machine that will help diagnose problems with engines that are
used in its production department. The machine was purchased on January 1, 2017 at a cost of $210,000.
A residual value of $10,000 was estimated. The expected useful life is 5 years. In 2017, Martindale
Motors has a gross profit of $400,000 and operating expenses of $180,000. The tax rate is 35%.
Required:
1. Compute the depreciation expense for 2017 under both the straight–line and double-declining-balance
depreciation methods.
2. What is the net cash saved if the accelerated depreciation method is used in 2017?
57) Katie’s Garden Company purchased a machine on July 1, 2017. The machine cost $200,000 and has
an estimated residual value of $20,000. The expected useful life is 8 years. The machine is to be used for
100,000 machine hours.
Required:
1. Calculate the depreciation expense for 2017 and 2018 using the straight-line method.
2. Calculate the depreciation expense for 2017 and 2018 using the units–of-production method. The
machine was used for 8,000 machine hours in 2017 and 23,000 machine hours in 2018.
3. Calculate the depreciation expense for 2017 and 2018 using the double-declining-balance method.
4 Learning Objective 7-4
1) To account for the disposal of a plant asset, the cost of the asset and its related accumulated
depreciation are removed from the books.
2) A Loss on Sale of Equipment will result when the book value of the equipment exceeds the cash
received from the sale of the equipment.
3) The Loss on Disposal of Equipment account is reported as Other income (expense) on the income
statement.
4) Gains on the sale of equipment increase net income while losses on the sale of equipment decrease
net income.
5) Before accounting for the disposal of a plant asset, the business should bring depreciation up to date
in order to determine the asset’s original cost.