Accounting Fundamentals For Health Care Management

Chapter 10, Test Your Knowledge

1. Which GAAP requires the use of depreciation for assets that have useful lives beyond 1 year?

2. Explain why the (the answer to ques 1) GAAP__________ requires the use of depreciation fo assets that have useful lives beyond 1 Year.

3. Explain the four steps in the depreciation process.

4. The York City Hospital has just acquired new equipment. The equipment cost $4,250,000, and the organization spent $135,000 on upgrading the physical plant the new equipment will be located in. The equipment is expected to have 10- year useful life and a savlvage value of 10% (i.e, $425,000). Calculate the first 5 years of depreciation, using the following methods:

a.) Stright Line Method

b.) Double Declining Balance Method

c.) Sum-of the-Years Digits method

4. A new medical practice purchases computer equipment that cost $15,000, to be used for medical billing. In addition, the practice purchases billing software that cost $5,000. Both the computer equipment and the software are expected to have 3-Year useful lives and no salvage vaule. Calculate the 3 years of depreciation, using the following methods:

a.) Stright Line Method

b.) Double Declining Balance Method

c.) Sum-of the-Years Digits method

5. The New Hospital has raised money for a new oncology wing. The hospital has also aquired medical diagnostic equipment that cost $500,000. In addition, the hospital paid $15,000 to ship the equipment from the manufacturer and $40,000 to install the equipment. The equipment is expected to have a 6-year useful life and a $30,000 salvage value. Calculate the 6 years of depreciation using the following methods:

a.) Stright Line Method

b.) Double Declining Balance Method

c.) Sum-of the-Years Digits method

6. For-profit organizations can use different methods for reporting depreciation to owners and to the government (for tax purposes). What is the practical effect of theis allowance?