71.In the fixed-percentage-of-declining-balance depreciation method, the book value of the asset is multiplied by:
A. An increasing depreciation rate.
B. A constant depreciation rate.
C. A decreasing depreciation rate.
D. A rate that changes each year but is determined from a table.
72.Which of the following situations is impossible?
A. Book value is greater than residual value.
B. Book value is equal to the residual value.
C. Book value is less than residual value.
D. Book value is less than the original cost.
73.Responsibility for selection of the depreciation methods used in financial reporting rests with:
A. Company management.
B. The FASB.
C. The IRS.
D. The CPA firm that audits the company’s financial statements.
74.With respect to depreciation policies, the principle of consistency means:
A. A company should use the same depreciation methods in its financial statements that it uses in its income tax returns.
B. A company should use the same depreciation methods as other companies in the same industry.
C. A company should use the same depreciation method from year to year for a given plant asset.
D. A company should use the same depreciation method in computing depreciation expense on all its assets.
75.The book value of equipment:
A. Increases with the passage of time.
B. Decreases with the passage of time.
C. Remains the same with the passage of time.
D. May increase or decrease depending upon the economy.
76.When a company uses straight-line depreciation and the half-year convention, assets with a five-year life:
A. Will have the same depreciation expense in the first and last years.
B. Will be depreciated over six accounting years.
C. Will have a book value that exceeds its salvage value at the end of its economic life.
D. All of these statements are correct.
77.The adjusting entries to record depreciation or amortization expense or to write down assets that have become impaired:
A. Reduce both net income and cash balances.
B. Reduce net income, but have no direct effect on cash balances.
C. Decrease cash balances, but have no direct effect upon net income.
D. Affect neither net income nor cash balances.
78.On March 2, 2014, Glen Industries purchased a fleet of automobiles at a cost of $550,000. The cars are to be depreciated by the straight-line method over five years with no salvage value. Glen uses the half-year convention to compute depreciation for fractional periods. The book value of the fleet of automobiles at December 31, 2015, will be:
A. $165,000.
B. $330,000.
C. $495,000.
D. $385,000.
($550,000/5) = $110,000/2 = $55,000 (year 1); ($550,000/5) = $110,000 (year 2);Book value = $550,000 – $55,000 – $110,000 = $385,000
79.On April 8, 2015, Jupitor Corp. acquired equipment at a cost of $480,000. The equipment is to be depreciated by the straight-line method over six years with no provision for salvage value. Depreciation for fractional years is computed by rounding the ownership period to the nearest month. Depreciation expense recognized in 2015 will be:
A. $53,333.
B. $66,667.
C. $60,000.
D. $80,000.
($480,000/6) × 9/12 = $60,000
80.Machinery acquired new on January 1 at a cost of $80,000 was estimated to have a useful life of 10 years and a residual salvage value of $20,000. Straight-line depreciation was used. On January 1, following six full years of use of the machinery, management decided that the estimate of useful life had been too long and that the machinery would have to be retired after three years, that is, at the end of the ninth year of service. Under this revised estimate, the depreciation expense for the seventh year of use would be:
A. $8,000.
B. $10,000.
C. $13,000.
D. $24,000.
($80,000 – $20,000)/10 = $6,000 × 6 = $36,000; $60,000 – $36,000 = $24,000/3 = $8,000
On April 2, 2014, Victor, Inc. acquired a new piece of filtering equipment. The cost of the equipment was $160,000 with a residual value of $20,000 at the end of its estimated useful lifetime of 4 years.
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