Learning Objective 6-6

1) On January 1, 2011, Fred McGriff Company bought office computers that cost $43,000, with an estimated useful life of 10 years and an estimated salvage value of $3,000. The company uses the straight-line method of depreciation and has a calendar yearend. For the year ended December 31, 2011, McGriff Company will report depreciation expense of ________ on the ________.

A) $4,300; statement of cash flows

B) $4,300; income statement

C) $4,000; income statement

D) $4,000; statement of cash flows

2) On January 1, 2011, Fred McGriff Company bought office computers that cost $43,000, with an estimated useful life of 10 years and an estimated salvage value of $3,000. The company uses the straight-line method of depreciation and has a calendar year end. For the year ended December 31, 2012, McGriff Company will report depreciation expense of ________ on the ________.

A) $4,300; statement of cash flows

B) $4,300; income statement

C) $4,000; income statement

D) $4,000; statement of cash flows

3) If an adjusting entry for depreciation is NOT made at the end of the accounting period, what is the effect on net income?

A) Net income will be too high.

B) Net income will be too low.

C) There will be no effect on net income.

D) Net income will not be affected in the current period, but will be overstated in the next period.

4) What is book value and on which financial statement is it reported?

A) Book value is the difference between accumulated depreciation and market value, and it is reported on the income statement.

B) Book value is the difference between historical cost and accumulated depreciation, and it is reported on the balance sheet.

C) Book value is the difference between depreciation expense and accumulated depreciation, and it is reported on the balance sheet.

D) Book value is the difference between historical cost and market value, and it is reported on the balance sheet.

5) What effect does depreciating a long-term asset have on the financial statements?

A) Depreciation causes a decrease in net income on the income statement and a decrease in total assets on the balance sheet.

B) Depreciation is reported as an operating activity cash outflow.

C) Depreciation is reported as an investing activity cash outflow.

D) Depreciation is reported on the statement of changes in shareholders’ equity.

6) WDS Company owns a patent with an estimated useful life of 15 years, a zero salvage value, and a historical cost of $42,000. Net income is $200,000 before the year-end adjustment related to the patent. What will net income be after the proper year-end adjustment has been made?

A) $202,800

B) $200,000

C) $197,200

D) $194,000

7) KUI Company owns a copyright with an estimated 10-year useful life, a zero salvage value, and an historical cost of $20,000. What is the effect on net income of making the proper adjusting entry at year-end?

A) The adjustment will decrease net income by $20,000.

B) The adjustment will increase net income by $2,000.

C) The adjustment will decrease net income by $2,000.

D) The adjustment will have no affect on net income, but it will reduce net operating cash flows by $2,000.

8) Which depreciation method will maximize net income reported to the shareholders in the early years of an asset’s life?

A) the straight-line method

B) the double-declining balance method

C) the capitalization method

D) the revenue matching method

9) Which depreciation method will result in the most total depreciation expense being recognized over a depreciable asset’s entire life?

A) the straight-line method

B) the double-declining balance method

C) the activity (units-of-production) method

D) All three of these methods report the same total depreciation expense over the asset’s life.

10) On January 1, 2011, Albatross Shipping Company bought equipment that cost $55,000, with an estimated useful life of 10 years and an estimated salvage value of $5,000. The company uses the straight-line method of depreciation. What is the BOOK VALUE of the equipment on

December 31, 2014?

A) $55,000

B) $50,000

C) $35,000

D) $30,000

Learning Objective 6-6

1) On January 1, 2011, Fred McGriff Company bought office computers that cost $43,000, with an estimated useful life of 10 years and an estimated salvage value of $3,000. The company uses the straight-line method of depreciation and has a calendar yearend. For the year ended December 31, 2011, McGriff Company will report depreciation expense of ________ on the ________.

A) $4,300; statement of cash flows

B) $4,300; income statement

C) $4,000; income statement

D) $4,000; statement of cash flows

2) On January 1, 2011, Fred McGriff Company bought office computers that cost $43,000, with an estimated useful life of 10 years and an estimated salvage value of $3,000. The company uses the straight-line method of depreciation and has a calendar year end. For the year ended December 31, 2012, McGriff Company will report depreciation expense of ________ on the ________.

A) $4,300; statement of cash flows

B) $4,300; income statement

C) $4,000; income statement

D) $4,000; statement of cash flows

3) If an adjusting entry for depreciation is NOT made at the end of the accounting period, what is the effect on net income?

A) Net income will be too high.

B) Net income will be too low.

C) There will be no effect on net income.

D) Net income will not be affected in the current period, but will be overstated in the next period.

4) What is book value and on which financial statement is it reported?

A) Book value is the difference between accumulated depreciation and market value, and it is reported on the income statement.

B) Book value is the difference between historical cost and accumulated depreciation, and it is reported on the balance sheet.

C) Book value is the difference between depreciation expense and accumulated depreciation, and it is reported on the balance sheet.

D) Book value is the difference between historical cost and market value, and it is reported on the balance sheet.

5) What effect does depreciating a long-term asset have on the financial statements?

A) Depreciation causes a decrease in net income on the income statement and a decrease in total assets on the balance sheet.

B) Depreciation is reported as an operating activity cash outflow.

C) Depreciation is reported as an investing activity cash outflow.

D) Depreciation is reported on the statement of changes in shareholders’ equity.

6) WDS Company owns a patent with an estimated useful life of 15 years, a zero salvage value, and a historical cost of $42,000. Net income is $200,000 before the year-end adjustment related to the patent. What will net income be after the proper year-end adjustment has been made?

A) $202,800

B) $200,000

C) $197,200

D) $194,000

7) KUI Company owns a copyright with an estimated 10-year useful life, a zero salvage value, and an historical cost of $20,000. What is the effect on net income of making the proper adjusting entry at year-end?

A) The adjustment will decrease net income by $20,000.

B) The adjustment will increase net income by $2,000.

C) The adjustment will decrease net income by $2,000.

D) The adjustment will have no affect on net income, but it will reduce net operating cash flows by $2,000.

8) Which depreciation method will maximize net income reported to the shareholders in the early years of an asset’s life?

A) the straight-line method

B) the double-declining balance method

C) the capitalization method

D) the revenue matching method

9) Which depreciation method will result in the most total depreciation expense being recognized over a depreciable asset’s entire life?

A) the straight-line method

B) the double-declining balance method

C) the activity (units-of-production) method

D) All three of these methods report the same total depreciation expense over the asset’s life.

10) On January 1, 2011, Albatross Shipping Company bought equipment that cost $55,000, with an estimated useful life of 10 years and an estimated salvage value of $5,000. The company uses the straight-line method of depreciation. What is the BOOK VALUE of the equipment on

December 31, 2014?

A) $55,000

B) $50,000

C) $35,000

D) $30,000

Learning Objective 6-6

1) On January 1, 2011, Fred McGriff Company bought office computers that cost $43,000, with an estimated useful life of 10 years and an estimated salvage value of $3,000. The company uses the straight-line method of depreciation and has a calendar yearend. For the year ended December 31, 2011, McGriff Company will report depreciation expense of ________ on the ________.

A) $4,300; statement of cash flows

B) $4,300; income statement

C) $4,000; income statement

D) $4,000; statement of cash flows

2) On January 1, 2011, Fred McGriff Company bought office computers that cost $43,000, with an estimated useful life of 10 years and an estimated salvage value of $3,000. The company uses the straight-line method of depreciation and has a calendar year end. For the year ended December 31, 2012, McGriff Company will report depreciation expense of ________ on the ________.

A) $4,300; statement of cash flows

B) $4,300; income statement

C) $4,000; income statement

D) $4,000; statement of cash flows

3) If an adjusting entry for depreciation is NOT made at the end of the accounting period, what is the effect on net income?

A) Net income will be too high.

B) Net income will be too low.

C) There will be no effect on net income.

D) Net income will not be affected in the current period, but will be overstated in the next period.

4) What is book value and on which financial statement is it reported?

A) Book value is the difference between accumulated depreciation and market value, and it is reported on the income statement.

B) Book value is the difference between historical cost and accumulated depreciation, and it is reported on the balance sheet.

C) Book value is the difference between depreciation expense and accumulated depreciation, and it is reported on the balance sheet.

D) Book value is the difference between historical cost and market value, and it is reported on the balance sheet.

5) What effect does depreciating a long-term asset have on the financial statements?

A) Depreciation causes a decrease in net income on the income statement and a decrease in total assets on the balance sheet.

B) Depreciation is reported as an operating activity cash outflow.

C) Depreciation is reported as an investing activity cash outflow.

D) Depreciation is reported on the statement of changes in shareholders’ equity.

6) WDS Company owns a patent with an estimated useful life of 15 years, a zero salvage value, and a historical cost of $42,000. Net income is $200,000 before the year-end adjustment related to the patent. What will net income be after the proper year-end adjustment has been made?

A) $202,800

B) $200,000

C) $197,200

D) $194,000

7) KUI Company owns a copyright with an estimated 10-year useful life, a zero salvage value, and an historical cost of $20,000. What is the effect on net income of making the proper adjusting entry at year-end?

A) The adjustment will decrease net income by $20,000.

B) The adjustment will increase net income by $2,000.

C) The adjustment will decrease net income by $2,000.

D) The adjustment will have no affect on net income, but it will reduce net operating cash flows by $2,000.

8) Which depreciation method will maximize net income reported to the shareholders in the early years of an asset’s life?

A) the straight-line method

B) the double-declining balance method

C) the capitalization method

D) the revenue matching method

9) Which depreciation method will result in the most total depreciation expense being recognized over a depreciable asset’s entire life?

A) the straight-line method

B) the double-declining balance method

C) the activity (units-of-production) method

D) All three of these methods report the same total depreciation expense over the asset’s life.

10) On January 1, 2011, Albatross Shipping Company bought equipment that cost $55,000, with an estimated useful life of 10 years and an estimated salvage value of $5,000. The company uses the straight-line method of depreciation. What is the BOOK VALUE of the equipment on

December 31, 2014?

A) $55,000

B) $50,000

C) $35,000

D) $30,000

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