Comprehended Intermediate Accounting
II Units 4-6 Questions And Answers
Equipment is placed in service on January 1. The cost of the equipment is $250,000
with a salvage value of $25,000 and an estimated useful life of five years. Which
amount of annual depreciation expense should be recorded on December 31 of Year 2
under the sum-of-years'-digits method? - CORRECT ANSWER-$60,000
A company placed an asset into service on Day 1 of Year 1 with the following data
related to the purchase:
Cost of machinery $225,000
Estimated salvage value $75,000
Product life hours 75,000 hours
Useful life 5 years
Hours used in Year 1 5,000 hours
Which amount of annual depreciation expense should be recorded in the first year using
the activity method? - CORRECT ANSWER-$10,000
$225,000-$75,000=$150,000
($150,000*5,000 hours)/75,000
On July 1, a company placed into service a vehicle for $50,000 with an estimated useful
life of five years and no salvage value. The company prepares accrual-basis financial
statements on a calendar-year basis. How many months should be included in the
calculation of depreciation expense for the year of acquisition using the double-
declining-balance method? - CORRECT ANSWER-6
A company purchased a piece of equipment for $120,000 and estimated that the asset
will have no salvage value at the end of its 15-year useful life. At the end of Year 5 of
ownership, when accumulated depreciation was $40,000 and the asset's book value
was $80,000, the company revised the asset's estimated useful life to a total of 10
years. What is the appropriate accounting treatment beginning with Year 6? -
CORRECT ANSWER-The equipment will depreciate $80,000 over the next five years.
A company using the composite approach to depreciation sells equipment for $10,000.
The equipment was purchased five years earlier for $15,000, and the company has
already recorded $5,000 in accumulated depreciation. What is included in the journal
entry for the sale of the equipment? - CORRECT ANSWER-Debit accumulated
depreciation-equipment for $5,000
A steel manufacturer uses the production variable method for depreciating assets.
Which combination best describes the depreciation method used? - CORRECT
ANSWER-Straight-line and activity
, A company owns an asset with an original cost of $300,000 and a current book value of
$160,000. During a review of the asset for impairment, the company estimates the
expected future cash flows from the use and disposal of the asset to be $200,000.
There is an active market for this asset, and the fair value of the asset, calculated as the
present value of expected future cash flows, is $140,000. Should this asset be
considered impaired? - CORRECT ANSWER-No, because the estimate of expected
future cash flows (undiscounted) is greater than the book value.
Several years ago, a company acquired an asset at a cost of $400,000. Last year, the
company recognized an impairment loss of $25,000 and properly reduced the asset's
book value from $250,000 to $225,000.
Using the asset's new base of $225,000, the company calculates depreciation for the
current year to be $10,000, bringing the book value down to $215,000. However, the
company has also determined that the asset's fair value has recovered and is now
estimated to be $260,000.
How should the company measure the asset on its current balance sheet - CORRECT
ANSWER-The company should not reverse the impairment and should depreciate the
asset by $10,000 to a new book value of $215,000.
A company invests $15,000,000 into a coal mine estimated to have 20 million tons of
coal. The coal mine is estimated to be in operation for the next five years. In Year 1, the
company extracted and sold 1 million tons of coal. How much is depletion in Year 1? -
CORRECT ANSWER-$750,000
$15,000,000/20,000,000= $.75
$.75*1,000,000=$750,000
A company invested $15,000,000 in a coal mine estimated to have 1,500,000 tons of
coal. In the first year, the company extracted 100,000 tons of coal. At the end of the first
year, it became clear that the coal mine was likely to have only another 700,000 tons of
coal remaining. Which depletion rate will be used starting in the second year? -
CORRECT ANSWER-$20.00 per ton
$15,000,000/700,000
A company reported total assets of $10,000,000 as of December 31, 2018, and
$14,000,000 as of December 31, 2019. Net sales revenue was $6,000,000 for the year
ending December 31, 2018, and $8,000,000 for the year ending December 31, 2019.
What was the company's asset turnover ratio for the year ending December 31, 2019? -
CORRECT ANSWER-0.67
8,000,000/(10,000,000+14,000,000/2)
8,000,000/12,000,000=.67
