7. ____ Lemming acquired a building for $60,000 that is estimated to last for 20

Question

7. ____ Lemming acquired a building for $60,000 that is estimated to last for 20 years. Lemming depreciates the building on a straight line basis, with no salvage value. The book value of the building after 4 years will be: a. $48,000 b. $55,000 c. $45,000 d. the same as the market value of the building

10. ____ Nell uses double declining balance depreciation. How much depreciation should Nell record in year one on Equipment with a cost of $8,000, salvage value of $1,000 and life of 5 years? A. $1,600   b. $3,200    c. $1,800   d. $3,600

11. ____ The depreciable cost of an asset is equal to the cost minus…a. the accumulated depreciation   b. the salvage value   c. the straight line rate   d. the DDB rate

12. ____ Johnson purchases a piece of equipment with an estimated useful life of 8 years. The DDB rate for this asset would be…a. 8%   b. .125   c. .25     d. .50

13. ____ On which financial statement would Accumulated Depreciation--Equipment be reported? A. Balance Sheet       b. Income Statement    c. Owner’s Equity Statement     d. None of these

14. ____ Name an accelerated depreciation method that is used ONLY for tax purposes:    a. SL    b. Units of Activity c. MACRS   d. all of these are accelerated methods for tax purposes

15. ____ Marley and Scrooge go into business together as partners in a partnership. Scrooge contributes land and equipment. These contributed assets should be valued at:   a. original cost paid by Scrooge    b. book value as they were recorded on Scrooge’s books    c. current fair market value, with approval of Marley    d. none of these

Explanation / Answer

7) ANSWER

Here Cost of the building = $60000

Life = 20 years

Salvage value = 0

Depreciation = (Cost - Salvage)/life

Thus depreciation for One year = (60000-0)/20 = $3000 per year

So depreciation for 4 years = 3000*4 = $12000

Book value of the building after 4 years = cost - depreciation for 4 years

                                                               = 60000-12000= $ 48000

Hence , our answer is a) $48000

10) ANSWER

Here we are provided with the following information:

Cost = $ 8000

Salvage value = $1000

Life = 5 Years

So in double declining balance method, we figure out the Rate of depreciation and then double that rate to find the double declining rate of depreciation.

Rate of depreciation = 1/life *100= 1/5 *100 = 20%

Double decline rate of depreciation = 20*2= 40%

So depreciation for year $3200

Our answer is b) $3200

11) Answer

It is the cost minus the expected salvage value.

Our answer is b) the salvage value.

12) ANSWER

Rate of Depreciation = 1/life=   1/8 = 0.125

DDB RATE = rate of depreciation *2 = 0.125*2= 0.25

Answer is c) .25

13) Accumulated depreciation - equipment is recorded on Balance sheet.

Answer : A) Balance Sheet

14) c) MACRS

15) c) Current fair market value.

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