Weatherly Corporation purchased a new production machine on July 1 of the current year, for $140,000. The estimated salvage value is $10,000. The company uses units-of-production depreciation and estimates the machine will produce 100,000 units during its useful life. In the current year, the company manufactures 5,000 units after acquiring the machine. Depreciation expense for the current year will be O a. $7,000. Ob. $6,500. c. $0. O d. $13,000. The service life of an asset may be measured by all of the following except units of O a. input. O b. activity. Oc output. Od. time. The formula for unit depletion rate is a. (Cost + Residual Value) + Estimated Recoverable Units. O b. (Cost Oc (Cost - Residual Value) + Estimated Recoverable Units. Od. (Cost + Residual Value) - Estimated Recoverable Units. - Residual Value) x Estimated Recoverable Units. The method is appropriate when a company estimates that the service potential of the asset will decline by an approximately constant amount each period of its useful life. Oa. sum-of-the-years'-digits O b. composite Oc straight-line O d. declining-balance are expenditures incurred after the resource is discovered but before production begins that are necessary for production of the resource. These costs include costs for drilling, tunnels, shafts, and wells. a. Intangible development costs O b. Exploration costs Oc Acquisition costs Od. Restoration costs ABC Company purchased land for $2,500,000 from which it expects to extract 200,000 tons of coal. The estimated residual value is $500,000. What is the unit depletion rate for the coal? Oa. $4.60 per ton O b. $10.00 per ton Oc. $12.50 per ton Od. $12.00 per ton The formula to calculate the average useful life of a fixed asset is Oa. Average Useful Life Ob. Average Useful Life Oc. Average Useful Life Od. Average Useful Life = Average Depreciable Assets + Depreciation Expense. Average Depreciable Assets - Depreciation Expense. Average Depreciable Assets + Depreciation Expense. Average Depreciable Assets x Depreciation Expense. The formula to compute composite depreciation expense is Oa. Annual Depreciation Expense + Cost. Ob. Cost of Assets Remaining in Service x Composite Depreciation Rate. Oc. (Composite Cost - Composite Residual Value) + Group Cost. Od. Cost + Annual Depreciation Expense. Accounting principles require that a company use a method of cost allocation that is systematic and rational. Three general approaches are used frequently in practice. Which of the following is not one of the three methods? O a. Group methods O b. Activity methods Oc. Time-based methods Od. Cost methods Group depreciation is applied to assets that are expected to have similar service lives and residual values. Composite depreciation is applied to assets that are related but have differing service lives and residual values. Oa. long-term; short-term Ob. homogeneous; heterogeneous Oc heterogeneous; homogeneous O d. different; similar A student is defending a certain depreciation method. She uses the argument that repairs and maintenance costs will probably increase as the asset gets older. She also argues that the asset will produce less as it gets older. What depreciation method is she probably defending? Oa. Sinking-fund method Ob. Sum-of-the-years'-digits method Oc. Straight-line method Od. Activity method Which of the following is accounted for with a prior period adjustment? O a. Correction of an error O b. Change in method Oc. Change in estimate Od. Immaterial change in accounting treatment Property, plant, and equipment that a company intends to sell is reported at the lower of its a. present value of future cash flows; book value Ob. fair value; net realizable value Oc. fair value; book value Od. book value; net realizable value or MACRS differs from straight-line depreciation computed for financial reporting. In this respect, which of the following statements is not true? Oa. MACRS decreases the income taxes payable in the early years of an asset's life. Ob. MACRS ignores residual value.. Oc. MACRS uses longer asset lives. Od. MACRS accelerates cost recovery. Brian Inc. purchased a piece of equipment for $30,000 with a useful life of 9 years and a residual value of $6,000 on January 2, 2019. If Brian Inc. uses the sum-of- the-years'-digits depreciation method with the half-year convention, depreciation expense for 2019 will be O a. $3,000.00. Ob. $2,666.67. Oc. $2,400.00. Od. $3,333.33. When the future economic benefit or service potential of an asset decreases below Its book value, the asset is said to be O a. negative. Ob. impaired. Oc. under water. Od. operating at a loss. Which of the following statements regarding GAAP depreciation requirements is not true? Oa. GAAP requires disclosure of accumulated depreciation by major class of depreciable assets or in total. Ob. GAAP requires balances of major classes of assets, by nature and function, to be disclosed. Oc. GAAP requires depreciation expense for the period to be disclosed. Od. GAAP requires a general description of the method used to compute depreciation. ABC Company, which uses a calendar year, has a desk that originally cost $1,000, has accumulated depreciation of $700, and is being depreciated at $100 per year. If ABC sells the desk for $120, what is the gain (loss) on the sale? O a. Gain of $120 Ob. Loss of $180 Oc. Gain of $180 Od. Loss of $120 The depreciation base is calculated as Oa. Asset Cost x Estimated Residual Value Depreciation Base. Ob. Asset Cost + Estimated Residual Value Depreciation Base. Oc. Asset Cost - Estimated Residual Value = Depreciation Base. Od. Asset Cost Estimated Residual Value Depreciation Base. MACRS differs from straight-line depreciation computed for financial reporting. In this respect, which of the following statements is not true? Oa. MACRS decreases the income taxes payable in the early years of an asset's life. O b. MACRS ignores residual value. Oc MACRS uses longer asset lives. Od. MACRS uses the half-year convention. Which of the following disclosures is not required by generally accepted accounting principles? Oa. Accumulated depreciation on each depreciable asset Ob. Balances of major classes of depreciable assets by nature or function Oc. Depreciation expense for each major class of asset Od. An explanation of why the depreciation method used was selected by management A company purchased 10 delivery vans at a cost of $20,000 each and used the group depreciation method. Which of the following would be correct when recording the subsequent sale of an individual van for $8,500 (group accumulated depreciation is $88,000)? Oa. Credit Delivery Vans for $17,300 Ob. Debit Accumulated Depreciation for $8,800 Oc. Debit Cash for $8,500 Od. Credit Loss on Sale for $2,700 Which of the following statements regarding recording a disposal of a fixed asset is not true? Oa. The asset is removed from the company's books with a credit. Ob. Accumulated Depreciation must be debited for depreciation to date for the asset being disposed of. Oc. In order to dispose of an asset, depreciation must be up to the date of disposal. Od. No cash may be recognized on the disposal of property, plant, and equipment. A company may dispose of property, plant, and equipment by all of the following except O a. abandonment. Ob. involuntary conversion. O c. sale. Od. purchase