Characteristics Of Straight-line Depreciation F7 Quiz
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When it comes to long term assets such as machines their ability to perform like they did when they were new depreciation is a factor that most companies need to keep an eye on. This cost is covered in the income statement, and it is commonly measured through the straight-line method. Take the test below and see how well you understand the characteristics of depreciation.
- 1.When a depreciable asset is sold for exactly its book value, the company:
- A.
Will remove the cost of the asset and its accumulated depreciation from the accounting records
- B.
Will not recognize any gain or loss
- C.
Answers a and b are both correct.
- D.
Will make no adjustment on the books because the transaction cancels itself out
- 2.One of the main characteristics of straight-line depreciation is:
- A.
More depreciation is taken in the early years of an asset’s life than in its later years
- B.
The complexity of the calculations
- C.
Constant depreciation expense each year
- D.
Difficulty in estimating residual value
- 3.
- A.
$11,600 gain
- B.
$2,000 gain
- C.
$8,400 gain
- D.
No gain or loss
- 4.The following information is available for Snowstorm Transit Company: · A machine is purchased on January 1, 2005, for $40,000 · The machine’s residual value on January 1, 2005, is estimated to be $5,000 · The machine’s estimated useful life is five years Using the information above, if Snowstorm Transit is using the straight-line depreciation method and sells the asset on January 1, 2008, for $15,000, it will have a:
- A.
$4,000 gain
- B.
$4,000 loss
- C.
$1,000 gain
- D.
$1,000 loss
- 5.What criterion is used to choose between the straight-line and accelerated depreciation methods?
- A.
Accelerated depreciation should be used for assets that produce more revenue in the early years and a lesser amount in the later years of the asset’s life.
- B.
The method chosen can be based on the anticipated effect on the financial statements during the asset’s useful life.
- C.
Straight-line depreciation should be used for assets that produce the same amount of revenue each period.
- D.
All of these answers are correct.
- 6.The method of depreciation in which the expense is calculated using book value and a set percentage rate is:
- A.
Straight-line
- B.
Double-declining balance
- C.
There is no depreciation method in which this situation occurs.
- D.
Units of production
- 7.When a depreciable asset is sold for exactly its book value:
- A.
The sale will affect the balance sheet, but not the income statement
- B.
The sale will not affect any of the financial statements
- C.
The sale will affect the income statement, but not the balance sheet
- D.
None of these answers is correct
- 8.Over the entire life of an asset, the total amount of depreciation recognized under straight-line method in relation to double-declining-balance method will be:
- A.
Less
- B.
Depends on life
- C.
Greater
- D.
The same
- 9.Disposing of depreciable assets:
- A.
May only occur when the asset is sold for its estimated residual value
- B.
Is not considered the company’s major ongoing activity
- C.
Is not considered a peripheral activity
- D.
Answers a and b are both correct.
- 10.A company has a truck that it purchased for $16,000. The truck has an estimated useful life of four years and an estimated residual value of $4,000. What is the depreciable base of the truck?
- A.
None of these answers is correct.
- B.
$4,000
- C.
$16,000
- D.
$12,000
- 11.Martha's Hideaway Tours has just acquired a new tour bus. The bus cost $45,000 to purchase, but then Martha had to spend an additional $3,000 to get it painted with the Hideaway logo and ready to use. If Martha plans to use the bus for five years, and then hopes to sell it for $12,000, how much depreciation will be recognized the first year under the double-declining-balance method?
- A.
$14,400
- B.
$18,000
- C.
$19,200
- D.
$7,200
- 12.Which statement regarding the useful life and residual value of assets is correct?
- A.
A company must sell an asset at the end of its useful life for its estimated residual value.
- B.
A company cannot use an asset past its estimated useful life.
- C.
The actual and estimated useful life and residual value of an asset may greatly differ.
- D.
A company cannot sell an asset until its estimated useful life has ended.
- 13.Tran-Can Products has equipment that it purchased for $5,000 three years ago. If the current accumulated depreciation is $4,000 and Tran-Can sells the equipment for $1,200 Tran-Can will realize a:
- A.
$200 gain
- B.
$200 loss
- C.
$1,200 gain
- D.
$1,200 loss
- 14.A firm that uses accelerated depreciation and disposes of an asset early in its useful life will be more likely to show a(n) __________ than a firm using the straight-line method that disposes of the same asset at the same point in time.
- A.
Revenue
- B.
Gain
- C.
Expense
- D.
Loss
- 15.The following information is available for Snowstorm Transit Company: · A machine is purchased on January 1, 2005, for $40,000. · The machine’s residual value on January 1, 2005, is estimated to be $5,000 · The machine’s estimated useful life is five years Using the information above, if Snowstorm Transit has been using the straight-line depreciation method and sells the asset on January 1, 2007, for $30,000, it will have a:
- A.
$4,000 gain
- B.
$4,000 loss
- C.
$5,000 loss
- D.
$5,000 gain
- 16.There are several differences in the calculation of depreciation between the straight-line and double-declining-balance methods. Which item below would not be a difference if a company were to calculate depreciation for an asset using the straight-line and double-declining-balance methods?
- A.
Net income in each year of the asset’s life
- B.
Depreciation expense in each year of the asset’s life
- C.
Accumulated depreciation in each year of the asset’s life
- D.
The total accumulated depreciation for the asset
- 17.According to the FASB, cash inflows from peripheral or incidental activities are called:
- A.
Earnings
- B.
Elements of income
- C.
Gains
- D.
Revenues
- 18.When a company sells a depreciable asset, the difference between the amount the company receives and the book value of the asset is the amount of:
- A.
Net income
- B.
Depreciable base
- C.
Residual value
- D.
Gain or loss
- 19.An example of a long-lived asset is:
- A.
Machinery or equipment
- B.
A building used in a business
- C.
Land
- D.
All of these answers are correct.
- 20.When a depreciable asset is sold for less than its book value, there is a:
- A.
Either a gain or a loss
- B.
Loss
- C.
Gain
- D.
Revenue
- 21.When a depreciable asset is sold for more than its book value, the company must at least:
- A.
Record the loss on the sale in the general ledger
- B.
Record the loss on the sale in the general journal
- C.
Remove the cost of the asset and its accumulated depreciation from the accounting records
- D.
Record the selling price of the asset as a sale in the general ledger
- 22.The following information is available for Snowstorm Transit Company: · A machine is purchased on January 1, 2005, for $40,000 · The machine’s residual value on January 1, 2005, is estimated to be $5,000 · The machine’s estimated useful life is five years If Snowstorm Transit has been using the straight-line depreciation method and sells the asset for $22,000 on January 1, 2008, it would have a __________, but if it had used double-declining-balance method it would have a __________.
- A.
$3,000 gain, $ 9,440 gain
- B.
$6,000 gain, $ 9,440 gain
- C.
$3,000 gain, $13,360 gain
- D.
$6,000 gain, $13,360 gain
- 23.The units-of-production method is similar to the straight-line method of depreciation except that:
- A.
It is an accelerated method of depreciation
- B.
It uses production activity as the basis of allocating depreciation expense
- C.
It uses months of operation as the basis of allocating depreciation expense
- D.
It is only used for income tax purposes
- 24.If Ruby’s Video Store purchases a new cash register for $2,500 and plans to use it for three years before disposing of it for an estimated $400, how much depreciation will Ruby’s recognize each year under the straight-line method?
- A.
$700
- B.
$967
- C.
$400
- D.
$833
- 25.Copycat Productions buys a new copier at a cost of $3,000. It is estimated that the copier will produce 60,000 copies during its useful life. Copycat believes it can sell the copier for $600 at the end of its useful life. Copycat will use the units-of-production method to depreciate the copier. During January, Copycat makes 1,100 copies. Copycat’s January depreciation expense for the copier is:
- A.
$600
- B.
$44
- C.
$2,400
- D.
$440
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