1. The sale of a depreciable asset resulting in a loss indicates that the proceeds (cash) from the sale were:

A. Less than current market value.

B. Greater than cost.

C. Greater than book value.

D. Less than book value.

E. None of the above answers.

2. Isaacs Inc. purchased equipment in 2019 at a cost of $180,000. It is now early 2021, and the book value of the asset is $130,000, the estimated fair value is $125,000, and the estimated future net cash flow earned by the equipment is $135,000. Which of the following statements is true?

A. No journal entry is necessary to reflect this information.

B. An impairment loss should be recorded now of $5,000.

C. A gain should be recorded now of $5,000.

D. Not enough information was given to determine the correct answer.

E. None of the above.

3. On January 1, 2020, Ringering Co. purchased a machine costing $200,000. The machine is in the MACRS 5-year recovery class for tax purposes, which uses the 200% declining balance method. For GAAP purposes, the machine has a 10-year life and the company uses the straight-line (SL) method. The machine is estimated to have a residual salvage value of $40,000. Which of the following statements is true?

A. Depreciation on the 2020 tax return for this machine should be $40,000.

B. Depreciation on the 2020 GAAP income statement for this machine should be $16,000.

C. If the optional SL method were used for taxes, 2020 tax depreciation should be $20,000.

D. All of the above statements are true.

E. Only statements A & B above are true.

F. None of the above statements is true.

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

A. Decrease gain; decrease loss.

B. Decrease gain; increase loss.

C. Increase gain; decrease loss.

D. Increase gain; increase loss.

E. None of the above answers.