Question 7 When the amount of use of a fixed asset varies from year to year, the

Question

Question 7

When the amount of use of a fixed asset varies from year to year, the method of determining depreciation expense that best matches allocation of cost with revenue is

Question 7 options:

double-declining-balance method

straight-line method

units-of-output method

MACRS

Question 8

A machine with a cost of $120,000 has an estimated residual value of $15,000 and an estimated life of 5 years or 15,000 hours. It is to be depreciated by the units-of-output method.  What is the amount of depreciation for the second full year, during which the machine was used 5,000 hours?

Question 8 options:

$5,000

$35,000

$21,000

$45,000

Question 9

A machine is purchased at the beginning of the fiscal year with a cost of $75,000 with an estimated residual value of $5,000 and an estimated life of 4 years or 18,000 hours. What is the amount of depreciation for the second full year, using the double-declining-balance method?

Question 9 options:

$17,500

$37,500

$18,750

$16,667

Question 10

Sands Company purchased mining rights for $500,000. It expects to harvest 1 million tons of ore over the next five years. During the current year, Sands mined 350,000 tons of ore. The entry to record the depletion would include

Question 10 options:

a debit to Depletion Expense for $175,000

a credit to Depletion Expense for $350,000

a debit to Accumulated Depletion for $175,000

a credit to Accumulated Depletion for $350,000

Question 11

Xtra Company purchased a business from Argus for $96,000 above the fair value of its net assets. Argus had developed the goodwill over 12 years. How much would Xtra amortize the goodwill for its first year?

Question 11 options:

$7,000

$8,000

goodwill is not amortized

not enough information to calculate amortization

Question 12

Fixed assets are ordinarily presented on the balance sheet

Question 12 options:

at current market values

at replacement costs

at cost less accumulated depreciation

in a separate section along with intangible assets

Question 13

Newport Company has sales of $2,025,000 for the current year. The book value of its fixed assets at the beginning of the year was $550,000 and at the end of the year was $800,000. The fixed asset turnover ratio for Newport is

Question 13 options:

3.0

3.6

3.7

2.5

double-declining-balance method

straight-line method

units-of-output method

MACRS

Explanation / Answer

7)

units-of-output method

The depreciation will be charged according to the output generated by the asset so as to match the depreciation expense exactly with the use of the asset.

8) $35000

Rate of depreciation = ($120000 - $15000) / 15000 hours = $7 per hour

Depreciation for the second year = 5000 hours x $7/hour = $35000

9) $18750

Double declining rate = (1/4) * 2 = 50%

Depreciation for the first year = $75000 x 50% = $37500

Depreciation for the second year = ($75000 - $37500) x 50% = $18750

10) a debit to Depletion Expense for $175,000

Depletion rate = $500000 / 1000000 tons = $0.50/ton

Depletion to be recorded for 350000 tons of production = 350000 x $0.50 per ton= $175000

11) goodwill is not amortized

Goodwill is an intangible asset that is not amortized, but is instead tested for impairment on an annual basis.

Source: Boundless. “Amortization of Intangible Assets.” Boundless Accounting. Boundless, 21 Jul. 2015. Retrieved 02 May. 2016 from https://www.boundless.com/accounting/textbooks/boundless-accounting-textbook/controlling-and-reporting-of-intangible-assets-7/introduction-to-intangible-assets-

12) at cost less accumulated depreciation

13) 3

Fixed asset turnover ratio

= Sales / average fixed assets

= $2025000 / [(550000 + 800000)/2]

= 3

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