1. Allocation of the historic costs of fixed assets against the annual revenue they generate is called (a) net profits. (b) gross profits. (c) depreciation. (d) amortization.

2. The Modified Accelerated Cost Recovery System (MACRS) is a depreciation method used for _________ purposes. (a) tax (b) financial reporting (c) managerial (d) cost accounting

3. A firms operating cash flow is defined as (a) gross profit minus operating expenses. (b) gross profit minus depreciation. (c) EBIT taxes+ depreciation. (d) EBIT + depreciation.

4. A corporation (a) must use the same depreciation method for tax and financial reporting purposes. (b) must use different depreciation methods for tax and financial reporting purposes. (c) may use different depreciation methods for tax and financial reporting purposes. (d) must use different (than for tax purposes), but strictly mandated, depreciation methods for financial reporting purposes.

5. All of the following are non-cash charges EXCEPT (a) depreciation. (b) accruals. (c) depletion. (d) amortization.

6. The depreciable value of an asset, under MACRS, is (a) the original cost (purchase price) only. (b) the original cost minus salvage value. (c) the original cost plus installation. (d) the original cost plus installation costs, minus salvage value.

7. Under MACRS, an asset which originally cost $10,000 is being depreciated using a 5year normal recovery period. What is the depreciation expense in year 3? (a) $1,900 (b) $1,200 (c) $1,500 (d) $2,100

8. Under MACRS, an asset which originally cost $100,000 is being depreciated using a 10year normal recovery period. The depreciation expense in year 5 is _________. (a) $10,000 (b) $12,000 (c) $21,000 (d) $ 9,000

9. Under MACRS, an asset which originally cost $100,000 is being depreciated using a 10year normal recovery period. The depreciation expense in year 11 is _________. (a) $3,000 (b) $4,000 (c) $0 (d) $6,000

10. Given the financial managers preference for faster receipt of cash flows, (a) a longer depreciable life is preferred to a shorter one. (b) a shorter depreciable life is preferred to a longer one. (c) the manager is not concerned with depreciable lives, because depreciation is a noncash expense. (d) the manager is not concerned with depreciable lives, because once purchased, depreciation is considered a sunk cost.