1. An asset that has an estimated physical life of six years and an estimated service life of four years should be depreciated over:

a. four years

b. five years

c. six years

d. Any of these choices can be chosen by management

2. Cutter Enterprises purchased equipment for $90,000 on January 1, 2018. The equipment is expected to have a five-year life and a residual value of $3,600.

Using the straight-line method, depreciation for 2018 would be:

a. $17,280

b. $18,000

c. $90,000

d. none of these answer choices are correct

3. Cutter Enterprises purchased equipment for $99,000 on January 1, 2018. The equipment is expected to have a five-year life and a residual value of $4,500.

Using the double-declining balance method, depreciation for 2018 and the book value at December 31, 2018, would be:

a. $37,800 and $61,200 respectively

b. $39,600 and $59,400 respectively

c. $39,600 and $54,900 respectively

d. $37,800 and $56,700 respectively

4. On June 30, 2018, Prego Equipment purchased a precision laser-guided steel punch that has an expected capacity of 300,000 units and no residual value. The cost of the machine was $450,000 and is to be depreciated using the units-of-production method. During the six months of 2018, 24,000 units of product were produced. At the beginning of 2019, engineers estimated that the machine can realistically be used to produce only another 230,000 units. During 2019, 70,000 units were produced.

Prego would report depreciation in 2018 of:

a. $36,000

b. $43,900

c. $18,000

d. $21,950

5. Archie Co. purchased a framing machine for $45,000 on January 1, 2018. The machine is expected to have a four-year life, with a residual value of $5,000 at the end of four years.

Using the straight-line method, depreciation for 2019 and book value at December 31, 2019, would be:

a. $10,000 and $20,000

b. $10,00 an $25,000

c. $11,250 and $17,500

d. $11,250 and $22,500

6. On September 30, 2018, Bricker Enterprises purchased a machine for $200,000. The estimated service life is 10 years with a $20,000 residual value. Bricker records partial-year depreciation based on the number of months in service.

Depreciation for 2018, using the double-declining balance method, would be:

a. $40,000

b. $10,000

c. $36,000

d. $9,000

7. An asset was acquired on January 1, 2018, for $15,000 with an estimated 4-year life and $1,000 residual value. The company uses straight-line depreciation. Calculate the gain or loss if the asset was sold on December 31, 2020, for $5,000.

a. $500 gain

b. $3,000 loss

c. $1,500 gain

d. $500 loss

8. On January 1, 2018, Tabitha Designs purchased a patent giving it exclusive rights to manufacture a new type of synthetic clothing for $240,000. While the patent had a remaining legal life of 15 years at the time of purchase, Tabitha expects the useful life to be only eight more years. In addition, Tabitha purchase equipment related to production of the new clothing for $140,000. The equipment has a physical life of 10 years but Tabitha plans to use the equipment only over the patents service life and then sell it for an estimated $20,000. Tabitha uses straight-line for all long-term assets. The amount to expense in 2021 related to the patent and equipment should be:

a. $40,000

b. $38,000

c. $45,000

d. $31,000

9. Russell Enterprises acquired a franchise from Michael Incorporated for $300,000. The franchise agreement is for a period of six years. Russell uses straight-line to amortize all intangible assets. What would be the reported book value of the franchise two years after the purchase?

a. $300,000

b. $250,000

c. $200,000

d. $100,000

10. Herman Apparel has purchased equipment on January 1, 2015, for $560,000. In 2015-2017, Herman depreciated the asset on a straight-line basis with an estimated useful life of eight years and a $80,000 residual value. In 2018, Herman has started to change its business strategy and now believes that the equipment will be used for only another two years (five years total) but does not believe the residual value has changed. What depreciation would Herman record for the year 2018 on this equipment?

a. $150,000

b. $175,000

c. $124,000

d. $ 96,000