Depreciation for the second year of use

A plant asset purchased for $400,000 has an estimated life of 10 years and a residual value of $20,000. Depreciation for the second year of use, determined by the declining-balance method at twice the straight-line rate is $.

1. A plant asset purchased for $250,000 has an estimated life of 10 years and a residual value of $20,000. Depreciation for the second year of use, determined by the declining-balance method at twice the straight-line rate is . 2. A plant asset purchased for $300,000 at the beginning of the year has an estimated life of 5 years and a residual value of $30,000. Depreciation for the second year, determined by the sum-of-the-years’-digits method is . 3. A plant asset with a cost of $320,000 and accumulated depreciation of $90,000, is given together with cash of $120,000 in exchange for a similar asset worth $330,000. The gain or loss recognized on the disposal (indicate by “G” or “L”) is . 4. A plant asset with a cost of $270,000, estimated life of 5 years, and residual value of $45,000, is depreciated by the straight-line method. This asset is sold for $200,000 at the end of the second year of use. The gain or loss on the disposal (indicate by “G” or “L”) is . Please include all the calculations.

A plant asset with a five-year estimated useful life and no residual value is sold at the end of the second year of its useful life. How would using the sum-of-the-years’-digits method of depreciation instead of the double-declining balance method of depreciation affect a gain or loss on the sale of the plant asset?

Multiple Choice—Computational

36.Consider an asset that was separated into its main components (A, B and C). The $1,200,000 purchase price was allocated to these components in equal proportions. The useful lives are 12, 4, and 7 years for components A, B and C respectively. Components A and B are not expected to have any residual value, but Component C is expected to have a residual value of $18,000. Assuming straight-line depreciation, total annual depreciation expense, to the nearest dollar, relating to these assets is

a) $100,100.

b) $125,120.

c) $187,905.

d) $190,476.

Feedback: $1,200,000÷3 = $400,000

(400,000 ÷ 12) + (400,000 ÷ 4) + (400,000–18,000) ÷ 7 = $187,905

37.Marmoset Corporation purchased factory equipment that was installed and put into service on January 2, 2017, at a total cost of $110,000. Residual value was estimated at $6,000. The equipment is being depreciated over four years using the double declining-balance method. For the calendar year 2018, Marmoset should record depreciation expense on this equipment of

a) $55,000.

b) $48,000.

c) $27,500.

d) $21,000.

Feedback: [$110,000 – ($110,000 x 2 ÷ 4)] × 2 ÷ 4 = $27,500

38.Mink Inc. purchased machinery that was installed and ready for use on January 3, 2017, at a total cost of $230,000. Residual value was estimated at $30,000. The machinery will be depreciated over five years using the double declining-balance method. For the calendar year 2018, Mink should record depreciation expense on this machinery of

a) $48,000.

b) $55,200.

c) $60,000.

d) $92,000.

Feedback: [$230,000 – ($230,000 × 2 ÷ 5]] × 2 ÷ 5 = $55,200

39.A machine has a cost of $24,000, a residual value of $6,000, and an estimated three-year life. If depreciation in the second year was $2,000, which depreciation method was used?

a) straight-line

b) double declining-balance

c) units of production

d) cannot tell from information given

Feedback: $24,000 × 2 ÷ 3 = $16,000; $24,000 – $16,000 = BV of $8,000;

              $8,000 × 2 ÷ 3 = $5,333, but only need $2,000 to arrive at residual value of $6,000

40.On January 1, 2017, Leopard Corp. purchased a new machine for $700,000. The new machine has an estimated useful life of nine years and the residual value was estimated to be $50,000. Depreciation was calculated using the double declining-balance method. To the nearest dollar, what amount should be shown in Leopard's balance sheet at December 31, 2018, net of accumulated depreciation, for this machine?

a) $550,000

b) $445,000

c) $427,778

d) $423,457

Feedback: $700,000 × 2 ÷ 9 = $155,556;($700,000 – $155,556) × 2 ÷ 9 = $120,987

              $700,000 – ($155,556 + $120,987) = $423,457

41.On April 1, 2012, Bear Ltd. purchased equipment for $80,000. The equipment was estimated to have a residual value of $10,000 and is being depreciated over eight years using the straight-line method. What should be the depreciation expense for this equipment for the year ended December 31, 2017?

a) $5,250

b) $7,000

c) $8,750

d) $10,000

Feedback: ($80,000 – $10,000) ÷ 8 = $8,750

42.On January 3, 2017, Coyote Corp. purchased machinery. The machinery has an estimated useful life of nine years and an estimated residual value of $45,000. Coyote uses straight-line depreciation for all their machinery, and recorded $77,000 depreciation expense for 2019. The acquisition cost of the machinery was

a) $738,000.

b) $710,000.

c) $693,000.

d) $685,000.

Feedback: Original cost = ($77,000 × 9) + $45,000 residual = $738,000

43.On January 2, 2017, Zebra Ltd. purchased equipment to be used in its manufacturing operations. The equipment has an estimated useful life of ten years, and an estimated residual value of $22,000. It was also estimated that the equipment would be used a total of 42,000 hours over its useful life. The depreciation expense for this equipment was $104,000 for calendar 2018, using the units of production method. The machine was used for 5,000 hours in 2018. The acquisition cost of the equipment was

a) $815,600.

b) $872,400.

c) $873,600.

d) $895,600.

Feedback: UOP rate = $104,000 ÷ 5,000 hours = $20.80; $20.80 x 42,000 hours = $873,600 (depreciable amount) + $22,000 residual = $895,600 original cost

44.Consider an asset for which the following information is available:

Carrying value at Dec 31, 2017 before depreciation.. $9,000

Calculated depreciation for 2017……………..$2,400

Original cost……………………………  $24,000

Residual value………………………….   $8,500

Remaining useful life……………………..  3 years

The depreciation expense for 2017 is

a) $3,100.

b) $3,000.

c) $2,400.

d) $500.

Feedback: $9,000 – $8,500 = $500 (maximum)

45.Swallow Ltd. takes a full year's depreciation expense in the year of an asset's acquisition and no depreciation expense in the year of disposition. Data relating to one of Swallow’s pieces of equipment at December 31, 2018 are as follows:

Acquisition year…………………2016

Cost…………………………$280,000

Residual value………………….40,000

Accumulated depreciation………….219,520

Estimated useful life……………..5 years

Using the same depreciation method that was used in 2016, 2017, and 2018, how much depreciation expense should be recorded in 2019 for this asset?

a) $60,480

b) $48,000

c) $32,000

d) $20,480

Feedback: $280,000 × .6 × .6 × .6 = $60,480

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