Multiple Choice Quiz
Multiple Choice Quiz
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Enter the letter corresponding to the response that best completes each of the following statements or questions.

 1 The method that does not necessarily produce a declining pattern of depreciation over an asset's service life is: A) The double-declining-balance method. B) The sum-of-the-years'-digits method. C) The units-of-production method. D) All of the above produce a declining pattern. 2 A delivery van that cost \$40,000 has an expected service life of eight years and a residual value of \$4,000. Depreciation for the second year of the asset's life using the sum-of-the-years'-digits method is: A) \$4,500 B) \$7,000 C) \$8,000 D) None of the above. 3 In question 2, depreciation for the second year of the asset's life using the DDB method is: A) \$7,500 B) \$6,750 C) \$4,500 D) None of the above. 4 On January 1, 2006, the Holloran Corporation purchased a machine at a cost of \$55,000. The machine was expected to have a service life of 10 years and no residual value. The straight-line depreciation method was used. In 2008 the estimate of residual value was revised from zero to \$6,000. Depreciation for 2008 should be: A) \$3,800 B) \$4,400 C) \$4,750 D) \$5,500 5 In question 4, assume that instead of revising residual value, in 2008 the company switched to the SYD depreciation method. Depreciation for 2008 should be: A) \$5,500 B) \$9,778 C) \$8,444 D) \$11,000 6 Felix Mining acquired a copper mine at a total cost of \$3,000,000. The mine is expected to produce 6,000,000 tons of copper over its five-year useful life. During the first year of operations, 750,000 tons of copper was extracted. Depletion for the first year should be: A) \$600,000 B) \$375,000 C) \$1,500,000 D) None of the above. 7 In 2007, the controller of the Green Company discovered that 2006 depreciation expense was overstated by \$50,000, a material amount. Assuming an income tax rate of 40%, the prior period adjustment to 2007 beginnings retained would be: A) \$0 B) \$30,000 debit. C) \$30,000 credit. D) None of the above. 8 A machine is purchased on September 30, 2006, for \$60,000. Useful life is estimated at four years and no residual value is anticipated. The SYD depreciation method is used. The acquiring company's fiscal year ends on December 31. Depreciation for 2007 should be: A) \$26,250 B) \$24,000 C) \$18,000 D) \$22,500 9 In question 8, assume that the company instead used the DDB depreciation method. Depreciation for 2007 should be: A) \$15,000 B) \$30,000 C) \$26,250 D) None of the above. 10 Which of the following approaches cannot be used to determine the fair value of an impaired operational asset? A) Prices of similar assets. B) The market price of the asset. C) The sum of the discounted expected cash flows. D) The sum of the undiscounted expected cash flows. 11 Which of the following types of subsequent expenditures is not normally capitalized: A) Additions. B) Improvements. C) Repairs and maintenance. D) Rearrangements. 12 In January of 2006, the Phillips Company purchased a patent at a cost of \$100,000. In addition, \$10,000 in legal fees were paid to acquire the patent. The company estimated a 10-year useful life for the patent and uses the straight-line amortization method for intangibles. In 2008, Phillips spent \$25,000 in legal fees for an unsuccessful defense of the patent. The amount charged to income (expense and loss) in 2008 related to the patent should be: A) \$103,000 B) \$36,000 C) \$113,000 D) None of the above. 13 The Cromwell Company sold equipment for \$35,000. The equipment, which originally cost \$100,000 and had an estimated useful life of 10 years and no salvage value, was depreciated for five years using the straight-line method. Cromwell should report the following on its income statement in the year of sale: A) A \$15,000 loss. B) A \$15,000 gain. C) A \$35,000 gain. D) None of the above. 14 Question 14 is based on Appendix 11A.MACRS depreciation is equivalent to: A) The straight-line method with a switch to SYD. B) The DDB method with a switch to straight line. C) The straight-line method. D) The DDB method.