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Question 1 Companies whose financial statements are to be audited or reviewed by a CPA can always use tax depreciation rules for their financial statements. can never use tax depreciation methods for their financial statements. can sometimes use UOP depreciation for their tax return. can use tax depreciation for their financial statements if the difference between the amounts computed under GAAP and tax rules is not material. 0.2 points Question 2 A company that uses a calendar year purchases an asset with a historical cost of $250,000, a residual value of $5,000 and an estimated life of 5 years. Under any GAAP depreciation method, the maximum depreciation permitted over the asset's life is $200,000 $245,000 $250,000 $255,000 0.2 points Question 3 An asset's original cost includes the invoice price, but not the sales tax or transportation or installation costs invoice price, sales tax and transportation and installation costs invoice price, sales tax and transportation costs, but not the installation costs invoice price and sales tax, but not the transportation or installation costs 0.2 points Question 4 On January 2, 2012, Demo Company purchases a machine for $11,000 and estimates that it will have a 10-year life and a residual value of $1,000. It is depreciating the machine for book purposes under the straight-line method. What is the journal entry to record Year 1 depreciation for a manufacturing company that uses the machine entirely for the production of inventory? Depreciation Expense 1,000 Accumulated Depreciation Machine Depreciation Expense 1,000 1,000 InventoryWork-in-Process OH InventoryWork-in-Process OH 1,000 1,000 Accumulated Depreciation-Machine InventoryWork-in-Process OH 1,000 4,000 Accumulated Depreciation-Machine 4,000 0.2 points Question 5 On January 2, 2012, Demo Company purchases a machine for $11,000 and estimates that it will have a 10-year life and a residual value of $1,000. It is depreciating the machine for book purposes under the straight-line method. What is the journal entry to record Year 1 depreciation for a manufacturer using the machine 70% for the production of inventory? Depreciation Expense Accumulated Depreciation Machine 1,000 1,000 Depreciation Expense 300 InventoryWork-in-Process OH 700 Accumulated Depreciation Machine 1,000 Depreciation Expense 400 InventoryWork-in-Process OH 3,600 Accumulated Depreciation-Machine InventoryWork-in-Process OH Depreciation Expense 4,000 1,000 1,000 0.2 points Question 6 Regardless of the GAAP depreciation method selected, the maximum allowable depreciation over the asset's life is the same the total accumulated depreciation at the end of the asset's life will equal the depreciable basis the total accumulated depreciation at the end of the asset's life cannot exceed the depreciable basis all of the above are correct/true 0.2 points Question 7 To calculate depreciation using GAAP rules, you must determine an asset's acquisition cost, estimated life, residual value and the depreciation method to be used cost basis and recovery period cost basis, depreciable basis and recovery period cost basis, depreciable basis, recovery period and the depreciation method to be used 0.2 points Question 8 Under GAAP, annual depreciation for a building can be allocated entirely to Depreciation Expense, entirely to InventoryWork in Process Inventory OH or partly to both, depending on how the building is used entirely to either Depreciation Expense or InventoryWork-in-Process OH, but not allocated partly to both only to Depreciation Expense only to InventoryWork-in-Process OH 0.2 points Question 9 A company pays $30,000 for two machines. Machine A is appraised at a fair market value of $24,000 and Machine B at a fair market value of $8,000. The cost of Machine B is recorded for book purposes at $7,500 $8,000 $24,000 $30,000 0.2 points Question 10 A company that uses a calendar year purchases an asset with a historical cost of $250,000, a residual value of $5,000 and an estimated life of 5 years. Under the straight-line method, the depreciation rate is 5% 10% 20% 40% 0.2 points Question 11 A company that uses a calendar year purchases an asset with a historical cost of $250,000, a residual value of $5,000 and an estimated life of 5 years. If the asset is acquired on September 30, 2012, first-year depreciation under the straight-line method is $12,250 $25,000 $49,000 $50,000 0.2 points Question 12 On April 1, 2012, a company on a calendar year purchases equipment with an acquisition cost of $85,000 that it estimates will produce 800,000 units over its 8-year life and have a residual value of $5,000. You are depreciating the asset for book purposes. If the company uses the straight-line method, 2012 depreciation is $7,500 $7,969 $10,000 $10,625 0.2 points Question 13 On January 2, 2012, Demo Company purchases a machine for $11,000 and estimates that it will have a 10-year life and a residual value of $1,000. It is depreciating the machine for book purposes under the straight-line method. What is the journal entry to record Year 1 depreciation for a nonmanufacturing company? Depreciation Expense 1,000 Accumulated Depreciation Machine Depreciation Expense 1,000 4,000 Accumulated Depreciation Machine InventoryWork-in-Process OH 4,000 1,000 Accumulated Depreciation-Machine InventoryWork-in-Process OH Depreciation Expense 1,000 1,000 1,000 0.2 points Question 14 Under straight-line depreciation, the annual depreciation rate is computed by dividing 100% by the estimated life dividing the numeral 1.00 by the estimated life eEither a or b none of the above 0.2 points Question 15 A company purchases a machine that has an original cost of $11,500, transportation costs of $500, installation charges of $1,500, an estimated life of 4 years or 20,484 hours, and a residual value of $800. You are depreciating the machine for book purposes. If the machine is acquired on August 1 and is used 2,500 hours during the year, depreciation for the year under the units of production method is $625 $1,550 $3,175 $3,375 0.2 points Question 16 A company purchases a machine that has an original cost of $11,500, transportation costs of $500, installation charges of $1,500, an estimated life of 4 years or 20,484 hours, and a residual value of $800. You are depreciating the machine for book purposes. Over the first four years, the machine is used for 18,000 hours. In Year 5, the machine is used for 3,000 hours. Under the units-of-production method, Year 5 depreciation (rounded) is $0 $1,540 $1,860 $2,484 0.2 points Question 17 A company purchases a machine that has an original cost of $11,500, transportation costs of $500, installation charges of $1,500, an estimated life of 4 years or 20,484 hours, and a residual value of $800. You are depreciating the machine for book purposes. What is the depreciation rate (rounded) under the units of production method? $0.52 per hour $0.55 per hour $0.62 per hour $0.66 per hour 0.2 points Question 18 In units of production depreciation, the depreciation rate is calculated as (Acquisition cost - Residual value)/Total estimated units Depreciable basis/Total estimated units of output (Historical cost - Salvage value)/Total estimated units produced, labor hours used or miles driven Any of the above is correct 0.2 points Question 19 On April 1, 2012, a company on a calendar year purchases equipment with an acquisition cost of $85,000 that it estimates will produce 800,000 units over its 8-year life and have a residual value of $5,000. You are depreciating the asset for book purposes. If the company uses units of production depreciation and the equipment produces 75,000 units in 2012 and 150,000 units in 2013, then at the end of the second year, total accumulated depreciation will be $7,500 $15,000 $22,500 $80,000 0.2 points Question 20 A company that uses a calendar year purchases an asset with a historical cost of $250,000, a residual value of $5,000 and an estimated life of 5 years. If the asset is acquired on January 1, 2012, first-year depreciation under the double-declining balance method is $25,000 $50,000 $60,000 $100,000 0.2 points Question 21 A company that uses a calendar year purchases an asset with a historical cost of $250,000, a residual value of $5,000 and an estimated life of 5 years. If the asset is acquired on January 1, 2012, second-year depreciation under the double-declining balance method is $25,000 $50,000 $60,000 $100,000 0.2 points Question 22 On April 1, 2012, a company on a calendar year purchases equipment with an acquisition cost of $85,000 that it estimates will produce 800,000 units over its 8-year life and have a residual value of $5,000. You are depreciating the asset for book purposes. If the company uses double-declining balance depreciation, its 2012 depreciation (rounded) will be $7,500 $10,000 $13,333 $15,938 0.2 points Question 23 On April 1, 2012, a company on a calendar year purchases equipment with an acquisition cost of $85,000 that it estimates will produce 800,000 units over its 8-year life and have a residual value of $5,000. You are depreciating the asset for book purposes. Under double-declining balance depreciation, the equipment's book value (rounded) at the end of 2013 will be $47,813 $51,797 $67,500 $69,063 0.2 points Question 24 To depreciate an asset under the double-declining balance method, multiply the acquisition cost by each year's depreciation rate cost basis by each year's depreciation rate depreciable base by each year's depreciation rate depreciation rate by each year's beginning book value 0.2 points Question 25 A company that uses a calendar year purchases an asset with a historical cost of $250,000, a residual value of $5,000 and an estimated life of 5 years. If the asset is depreciated under the sum-of-years'-digits method, the denominator of the depreciation rate would be 5 15 20 55 0.2 points Question 26 A company that uses a calendar year purchases an asset with a historical cost of $250,000, a residual value of $5,000 and an estimated life of 5 years. If the asset is acquired on January 1, 2012, and is depreciated under the sum-of-years'-digits method, first-year depreciation (rounded) would be $20,417 $49,000 $60,000 $81,667 0.2 points Question 27 For assets acquired during the year, the sum-of-the-years'-digits method requires that the same depreciation rate be used for the remaining months of the year of acquisition, then again in the final year of the asset's estimated life for any months not depreciated in Year 1 for 12 consecutive months, even if that results in the same rate being used in two different calendar years throughout the life of the asset until the end of the calendar year, then recomputed for the next calendar year 0.2 points Question 28 On April 1, 2012, a company on a calendar year basis purchases equipment with an acquisition cost of $85,000 that it estimates will produce 800,000 units over its 8-year life and have a residual value of $5,000. You are depreciating the asset for book purposes. If the company uses the sum-of-the-years'digits method, the 2013 depreciation (rounded) will be $13,333 $16,111 $15,556 $17,778 0.2 points Question 29 Under both GAAP and tax depreciation, an asset cannot be depreciated until it has been acquired and placed in service acquired (even if not yet placed in service) recorded on company books in an asset account categorized by the company as being for office use, for manufacturing, or for a combination of both 0.2 points Question 30 Under sum-of-years'-digits depreciation, the book value remains the same each year the denominator of the SYD fraction changes each year the depreciation rate changes each year all of the above are correct 0.2 points Question 31 If a calendar-year company purchases over $560,000 of equipment during 2012, not including buildings, the maximum Section 179 deduction of $139,000 is eliminated reduced by the amount found in the appropriate IRS table reduced dollar for dollar by the amount of equipment purchased above $560,000 still permitted, but no depreciation can be taken for the year 0.2 points Question 32 On August 1 of the current year, a company with a December 31 year-end buys a nonresidential building for $600,000, which includes land that costs $100,000. Under MACRS, depreciation for this year will be $4,815 $5,778 $12,305 $14,766 0.2 points Question 33 On August 1 of the current year, a company with a December 31 year-end buys a nonresidential building for $600,000, which includes land that costs $100,000. Under MACRS, depreciation in the 12th year will be $535 $642 $12,820 $15,384 0.2 points Question 34 On August 10, 2012, a calendar-year company purchases a new machine (7-year property) with a cost basis of $169,000. Under MACRS, what is the combined first-year Section 179 deduction and depreciation (rounded) for the machine? $141,144 $143,287 $154,000 $156,144 0.2 points Question 35 On October 20 of the current year, a company with a December 31 year-end, purchases a factory for $150,000, which includes $50,000 for the land. What is first-year depreciation for this asset under MACRS? $111 $535 $2,461 $53,500 0.2 points Question 36 On September 2, 2012, a calendar-year company purchases a used machine (5-year property) for $149,000. What is the maximum tax deduction for the machine in 2012 (Year 1)? $29,800 $83,400 $139,000 $141,000 0.2 points Question 37 On September 2, 2012, a calendar-year company purchases a used machine (5-year property) for $149,000. What is the maximum tax deduction for the machine in 2013 (Year 2)? $1,600 $3,200 $17,600 $35,200 0.2 points Question 38 On September 2, 2012, a calendar-year company purchases a used machine (5-year property) for $149,000. What is the maximum tax deduction for the machine in 2017 (Year 6)? $0, because the machine has a 5-year recovery period $576 $3,226 $6,451 0.2 points Question 39 On which of the following assets can a company take a Section 179 deduction? Office building Computer Rental apartment building Warehouse 0.2 points Question 40 The half-year convention generally applies to all assets being depreciated under MACRS assets other than buildings and passenger autos being depreciated under MACRs assets other than buildings being depreciated under MACRS assets other than passenger autos being depreciated under MACRS 0.2 points Question 41 The mid-month convention applies to assets other than buildings purchased during the last three months whose aggregate basis exceeds 40% of the aggregate basis of assets other than buildings purchased during the year assets purchased during the last 3 months whose aggregate basis exceeds 40% of the aggregate basis of assets purchased during the year buildings buildings and land 0.2 points Question 42 The mid-quarter convention must be used when the aggregate basis of assets (excluding buildings) acquired during the last 3 months of the year exceeds 40% of the aggregate basis of assets (excluding buildings) purchased during the first three quarters of the year exceeds 40% of the aggregate basis of assets (excluding buildings) purchased during the year is no more than 40% of the aggregate basis of assets (excluding buildings) purchased during the first three quarters of the year is no more than 40% of the aggregate basis of assets (excluding buildings) purchased during the year 0.2 points Question 43 When computing tax depreciation in the first year for new equipment that has a recovery period of less than 20 years, you can or cannot take 50% bonus depreciation as you wish; no election is required cannot take 50% bonus depreciation unless you elect to do so must take 50% bonus depreciation unless you elect not to do so must take 50% bonus depreciation unless you elect not to do so, but must wait to take normal Table 1 depreciation until Year 2 0.2 points Question 44 Company records show that an employee provided with a company car drove it 80% for business and 20% for personal use. The company reports the personal use as income on the employee's W-2. As a result, the company can depreciate 80% of the car's cost basis the company can depreciate 100% of the car's cost basis the company can depreciate the car without IRS limits on annual depreciation the company cannot depreciate the car 0.2 points Question 45 During 2012, your firm acquires a 5,000-lb. SUV for $30,000 and a 6,200-lb. SUV for $35,000. How much of a Section 179 deduction can Demo take on each vehicle in 2012? $0 and $25,000 $25,000 and $25,000 $30,000 and $25,000 $30,000 and $35,000 No Section 179 deduction can be taken for SUVs. 0.2 points Question 46 On July 1, 2012, a calendar-year corporation purchases a new passenger auto for $25,000. The maximum tax depreciation allowed on the auto in 2012 is $7,660 $11,160 $12,500 $15,000 0.2 points Question 47 On July 1, 2012, a calendar-year corporation purchases a new passenger auto for $25,000. The maximum tax depreciation allowed in Year 6 will be $0 $720 $1,617 $1,875 0.2 points Question 48 Under MACRS, a sole proprietor who uses her own car 20% for personal purposes and 80% for business in her unincorporated company can depreciate 80% of the car's cost basis can depreciate 100% of the car's cost basis can depreciate 20% of the car's cost basis cannot depreciate the car if it is not used 100% for business 0.2 points Question 49 When the MACRS Table 1 depreciation for an auto or light SUV, pickup or van is in excess of annual IRS limits the excess depreciation is lost permanently. may be taken by extending the MACRS recovery period for as many years as are needed to depreciate the cost basis may be taken by extending the MACRS recovery period for one extra year may result in the auto being depreciated under a GAAP method 0.2 points Question 50 Which of the following is not subject to annual IRS depreciation limits? A company car used by the company's president A company car used by the company's sales manager An unmodified company van weighing 5,000 pounds An unmodified company van weighing 7,500 pounds