Effects of various methods of depreciation.
1. A plant asset with a five-year estimated useful life and no residual value is sold at the end of the second year of its useful life. How would using the sum-of-the-years'-digits method of depreciation instead of the double-declining-balance method of depreciation affect a gain or loss on the sale of the plant asset?
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Gain
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Loss
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a.
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Decrease
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Decrease
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b.
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Decrease
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Increase
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c.
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Increase
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Decrease
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d.
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Increase
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Increase
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2. Snead Corporation, which has a calendar year accounting period, purchased a new machine for $60,000 on April 1, 1996. At that time Snead expected to use the machine for nine years and then sell it for $6,000. The machine was sold for $33,000 on Sep. 30, 2001. Assuming straight-line depreciation, no depreciation in the year of acquisition, and a full year of depreciation in the year of retirement, the gain to be recognized at the time of sale would be
a.$6,000.
b.$4,500.
c.$3,000.
d.$0.
3. Bigbie Company purchased a depreciable asset for $600,000. The estimated salvage value is $30,000,and the estimated useful life is 10,000 hours. Bigbie used the asset for 1,100 hours in the current year. The activity method will be used for depreciation. What is the depreciation expense on this asset?
a.$57,000
b.$62,700
c.$66,000
d.570,000
4. In March, 2007, Tylor Mines Co. purchased a coal mine for $6,000,000. Removable coal is estimated at 1,500,000 tons. Tylor is required to restore the land at an estimated cost of $720,000, and the land should have a value of $630,000. The company incurred $1,500,000 of development costs preparing the mine for production. During 2007, 450,000 tons were removed and 300,000 tons were sold. The total amount of depletion of depletion that Tylor should record for 2007 is
a.$1,374,000.
b.$1,518,000.
c.$2,061,000.
d.$2,277,000.
5. Sloane, Inc. purchased equipment in 2005 at a cost of $600,000. Two years later it became apparent to Sloane, Inc. that this equipment had suffered an impairment of value. In early 2007, the book value of the asset is $360,000 and it is estimated that the fair value is now only $240,000. The entry to record the impairment is
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a.
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No entry is necessary as a write-off violates the historical cost principle.
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b.
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Retained Earnings
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120,000
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Accumulated Depreciation---Equipment
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120,000
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c.
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Loss on Impairment of Equipment
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120,000
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Accumulated Depreciation---Equipment
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120,000
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d.
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Retained Earnings
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120,000
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Reserve for Loss on Impairment of Equipment
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120,000
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6. Starr Company purchased a depreciable asset for $150,000. The estimated salvage value is $10,000, and the estimated useful life is 8 years. The double-declining balance method will be used for depreciation. What is the depreciation expense for the second year on this asset?
a.$17,500
b.$26,250
c.$28,125
d.$37,500
7. On January 1, 2000, Barnes Company purchased equipment at a cost of $50,000. The equipment was estimated to have salvage value of $5,000 and it is being depreciated over eight year under the sum-of-the-years'-digits method. What should be the charge for depreciation of this equipment for the year ended December 31, 2007?
a.$1,250
b.$1,389
c.$2,500
d.$5,625