Q: Which formula is used to calculate annual depreciation expense under the straight-line method?

$$\\text{Depreciation Expense} = \\frac{\\text{Cost} - \\text{Residual Value}}{\\text{Useful Life}}$$

Question 1

Which of the following costs should NOT be capitalized as part of the cost of a new building?

Accepted Answer

Repairs to equipment used in construction

Question 2

A company purchases machinery for $$50,000. It estimates a residual value of 5$$,000 and a useful life of 10 years. Using the straight-line method, what is the annual depreciation expense?

Accepted Answer

$4,500

Question 3

Which depreciation method results in higher depreciation expense in the early years of an asset’s useful life?

Accepted Answer

Double-declining balance method

Question 4

A company purchased equipment for $$40,000. The equipment has a useful life of 5 years and a residual value of 5$$,000. Using the double-declining balance method, what is the depreciation expense for the first year?

Accepted Answer

$16,000

Question 5

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

Accepted Answer

Trademark

Question 6

A company purchased a patent for $120,000. The patent has a legal life of 20 years but is expected to be useful for only 10 years. What is the annual amortization expense?

Accepted Answer

$6,000

Question 7

Which of the following expenditures should be expensed rather than capitalized?

Accepted Answer

Routine maintenance of equipment

Question 8

If an asset’s carrying amount exceeds its recoverable amount, what accounting action should be taken?

Accepted Answer

Write down the asset to its recoverable amount

Question 9

Which formula is used to calculate annual depreciation expense under the straight-line method?

Accepted Answer

$$\text{Depreciation Expense} = \frac{\text{Cost} - \text{Residual Value}}{\text{Useful Life}}$$

Question 10

A company sells equipment for $$12,000. The equipment’s carrying amount is 10$$,000. What is the journal entry to record the sale?

Accepted Answer

Debit Cash $$12,000; Debit Accumulated Depreciation; Credit Equipment 10$$,000; Credit Gain on Sale $2,000

Question 11

Which of the following is an example of an intangible asset?

Accepted Answer

Copyright

Question 12

Under IFRS, which costs related to research and development are capitalized?

Accepted Answer

Development costs meeting certain criteria

Question 13

A company purchased land for $$200,000 and incurred 10$$,000 in legal fees, $$5,000 in property taxes for the first year, and 15$$,000 to demolish an old building on the land. What is the total cost of the land to be capitalized?

Accepted Answer

$225,000

Question 14

Which depreciation method is most appropriate when the asset’s usage varies significantly from year to year?

Accepted Answer

Units-of-production method

Question 15

A company purchased equipment for $$30,000. The equipment is expected to produce 100,000 units over its useful life and has a residual value of 5$$,000. If 20,000 units are produced in the first year, what is the depreciation expense using the units-of-production method?

Accepted Answer

$6,000

Question 16

Which of the following statements about impairment of long-lived assets is TRUE?

Accepted Answer

Impairment is recognized when the carrying amount exceeds the recoverable amount.

Question 17

Which of the following is NOT included in the cost of equipment?

Accepted Answer

Routine maintenance costs

Question 18

A company purchased a trademark for $50,000. The trademark has an indefinite useful life. How should the company account for the trademark?

Accepted Answer

Do not amortize, but test for impairment annually

Question 19

Which of the following best describes the impact of capital expenditures on the statement of cash flows?

Accepted Answer

They are reported as investing activities

Question 20

A company purchased equipment for $$25,000 and sold it for 10$$,000 after three years. The accumulated depreciation at the time of sale was $18,000. What is the gain or loss on sale?

Accepted Answer

Gain of $3,000

Property, Plant, and Equipment, and Intangible Assets: Study Notes

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