Q: A company uses the units-of-production method to depreciate its machinery. Which formula should it use to calculate annual depreciation expense?

Annual Depreciation = $$\frac{\text{Cost} - \text{Residual Value}}{\text{Total Estimated Units}} \times \text{Units Produced in Period}$$

Q: A company uses the double-declining balance method for depreciation. Which formula should it use to calculate annual depreciation expense?

Annual Depreciation = $$\text{Book Value at Beginning of Year} \times 2 \times \frac{1}{\text{Useful Life in Years}}$$

Question 1

A company uses the periodic inventory system and purchases inventory at different prices throughout the year. If the company wants to match the most recent costs with current revenues, which inventory costing method should it use?

Accepted Answer

LIFO

Question 2

Which account would a manufacturing company use to track the costs of products that are still being produced but not yet completed?

Accepted Answer

Work in Process Inventory

Question 3

A company conducts a physical inventory count at year-end and discovers a discrepancy between the counted inventory and the records. What is the most likely reason for this discrepancy?

Accepted Answer

Inventory records were not updated for theft, loss, or errors

Question 4

A company receives a bank statement showing a collection made by the bank on behalf of the company. What is the correct journal entry for this transaction?

Accepted Answer

Debit Cash; Credit Accounts Receivable

Question 5

Which of the following best describes the impact of the Sarbanes-Oxley Act on financial accounting?

Accepted Answer

It increased transparency and accountability to prevent accounting scandals

Question 6

A petty cash fund is established in a business primarily to:

Accepted Answer

Handle trivial expenses without frequent journal entries

Question 7

A company disposes of a delivery truck before it is fully depreciated. Which statement is correct regarding the timing of asset disposal?

Accepted Answer

Assets can be disposed of at any point during their useful life

Question 8

A company uses the units-of-production method to depreciate its machinery. Which formula should it use to calculate annual depreciation expense?

Accepted Answer

Annual Depreciation = $$\frac{	ext{Cost} - 	ext{Residual Value}}{	ext{Total Estimated Units}} 	imes 	ext{Units Produced in Period}$$

Question 9

Which of the following assets would be subject to depletion rather than depreciation?

Accepted Answer

Oil reserves

Question 10

Why is depreciation recorded in financial accounting?

Accepted Answer

To allocate the cost of an asset over its useful life

Question 11

A company purchases land, a building, and equipment for a single price of $500,000. What is the correct accounting treatment for this transaction?

Accepted Answer

Allocate the purchase price among the assets based on their relative fair values

Question 12

A company purchases office furniture for $$12,000 on March 1. The furniture has a useful life of 8 years and a residual value of 1$$,600. What is the depreciation expense for the first year using straight-line, assuming the company uses a calendar year?

Accepted Answer

$$1,040.00$$

Question 13

A company tests an asset for impairment. What is the main reason for this test?

Accepted Answer

To ensure the asset's book value reflects its future economic benefits

Question 14

Which of the following is NOT considered a long-lived asset?

Accepted Answer

Inventory

Question 15

A company uses the double-declining balance method for depreciation. Which formula should it use to calculate annual depreciation expense?

Accepted Answer

Annual Depreciation = $$	ext{Book Value at Beginning of Year} 	imes 2 	imes \frac{1}{	ext{Useful Life in Years}}$$

Question 16

A company retires a fully depreciated asset with no proceeds. What is the primary reason for this action?

Accepted Answer

To clean up the financial statements by removing assets no longer in use

Question 17

A company is deciding between FIFO and LIFO inventory methods during a period of rising prices. Which method will result in a higher cost of goods sold and lower net income?

Accepted Answer

LIFO

Question 18

Which of the following would NOT be included in the calculation of the initial cost of a long-lived asset?

Accepted Answer

Routine maintenance costs after purchase

Question 19

A company purchases equipment for $$50,000, expects a residual value of 5$$,000, and a useful life of 10 years. What is the annual depreciation expense using the straight-line method?

Accepted Answer

$$\frac{50,000 - 5,000}{10} = 4,500$$

Question 20

A company purchases a machine for $$100,000. It estimates the machine will produce 250,000 units over its life and have a residual value of 10$$,000. If the machine produces 30,000 units in the first year, what is the depreciation expense for that year using the units-of-production method?

Accepted Answer

$$\frac{100,000 - 10,000}{250,000} 	imes 30,000 = 10,800$$

Financial Accounting Study Guide: Chapters 5, 6 & 8 (Periodic Inventory, Depreciation, Asset Management)

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