(Multiple Choice)
1. A method that excludes residual value from the base for the depreciation calculation is
a. Straight-line
b. Sum-of-the-years€™-digits
c. Double-declining-balance
d. Productive-output

Items 2 through 4 are based on the following information:
Vorst Corporation€™s schedule of depreciable assets at December 31, 2007 was as follows:

Vorst takes a full year€™s depreciation expense in the year of an asset€™s acquisition, and no depreciation expense in the year of an asset€™s disposition. The estimated useful life of each depreciable asset is five years.

2. Vorst depreciates asset A on the double-declining balance method. How much depreciation expense should Vorst record in 2008 for asset A?
a. $32,000
b. $25,600
c. $14,400
d. $6,400

3. Using the same depreciation method as used in 2005, 2006, and 2007, how much depreciation expense should Vorst record in 2008 for asset B?
a. $6,000
b. $9,000
c. $11,000
d. $12,000

4. Vorst depreciates asset C by the straight-line method. On June 30, 2008, Vorst sold asset C for $28,000 cash. How much gain (loss) should Vorst record in 2008 on the disposal of asset C?
a. $2,800
b. ($2,800)
c. ($5,600)
d. ($8,400)

5. The composite depreciation method
a. Is applied to a group of homogeneous assets
b. Is an accelerated method of depreciation
c. Does not recognize gain or loss on the retirement of single assets in the group
d. Excludes residual value from the base of the depreciation calculation

6. On July 1, 2006, Mundo Corporation purchased factory equipment for $50,000. Residual value was estimated at $2,000. The equipment will be depreciated over 10 years using the double-declining-balance method. Counting the year of acquisition as one-half year, Mundo should record 2007 depreciation expense of
a. $7,680
b. $9,000
c. $9,600
d. $10,000

7. A fixed asset with a five-year estimated useful life is sold during the second year. How would the use of the straight-line method of depreciation instead of the double-declining-balance method of depreciation affect the amount of gain or loss on the sale of the fixed asset?
Gain Loss
a. No effect ..... No effect
b. No effect .... Increase
c. Decrease ...... Increase
d. Increase ..... Decrease

8. Crowder Company acquired a tract of land containing an extractable natural resource. Crowder is required by the purchase contract to restore the land to a condition suitable for recreational use after it has extracted the natural resource. Geological surveys estimate that the recoverable reserves will be 5,000,000 tons and that the land will have a value of $1,000,000 after restoration. Relevant cost information follows:
Land $9,000,000
Estimated restoration costs 1,500,000
If Crowder maintains no inventories of extracted material, what should be the depletion expense per ton of extracted material?
a. $2.10
b. $1.90
c. $1.80
d. $1.60

9. A machine with a four-year estimated useful life and an estimated 15% residual value was acquired on January 1. Would depreciation expense using the sum-of-the-years€™-digits method be higher or lower than depreciation expense using the double-declining-balance method in the first and second years?

10. At the end of the expected useful life of a depreciable asset with an estimated 15% residual value, the accumulated depreciation would equal the original cost of the asset under which of the following depreciationmethods?

Transcribed Image Text:

Accumulated Acquisition Residual Cost Depreciation Value $20,000 10,000 14,000 $44,000 Asset A $100,000 64,000 36,000 33,600 $225,000 133,600 Date 2006 2005 2005 В 55,000 C 70,000 First year a. Higher b. Higher C. Lower d. Lower Second year Higher Lower Higher Lower