ate Chapteruiz MULTIPLE CHOICE Instructions: Circle the best answer for each of

Question

ate Chapteruiz MULTIPLE CHOICE Instructions: Circle the best answer for each of the following questions. 1. If unwanted buildings are located on land acquired for a plant site, the cost their removal, less any salvage recovered, should be charged to the: a. expense accounts b. building account c. land account oy 2. The depreciation method used most often in the financial statements is the: a. straight-line method b. double-declining-balance method c. units-of-production method d. MACRS method 3. The depreciation method that would provide the highest reported net income in the early years of an asset's life would be: a. straight-line b. double-declining-balance c. MACRS d. units of production 4. Equipment with an estimated useful life of 5 years and an estimated residual value of $1,000 is acquired at a cost of $15,000. Using the double- declining-balance method, what is the amount of depreciation for the first year of use of the equipment? a. $2,600 b. $3,000 c. $5,600 d. $6,000

Explanation / Answer

Answer 1-c. land account The cost of the removing unwanted building (less any salvage) is added in the cost of the Land. Answer 2-a. straight line method. Striaght Line method most commonly used depreciation method in the financial statement because it is the simplest and easy to calculate depreciation. Answer 3-a. straight line method. The straight-line method creates smaller annual depreciation expenses than does the declining-balance method. Therefore, the straight-line method of depreciation yields the highest net income. Furthermore, the straight-line method under ADS will give higher net income if the ADS has a longer recovery period than that used for GDS. Under MACRS, if you choose the declining-balance method, you must switch to the straight-line method in the year when it gives you a larger deduction than the declining balance method would. Answer 4-d. $6,000 Rate of Dep. Under DDB = 2 X 20% (Rate under Straight line method) Rate of Dep. Under DDB = 40% Depreciation under DDB - First Year = $15,000 X 40% = $6,000

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