Question

1) Depreciation computed under double−declining−balance will decrease each year because:
A.the book value used in the computation each year increases
B.the rate used in the computation each year decreases
C.the book value used in the computation each year decreases
D.the rate used in the computation each year increases

2) At the end of an asset's useful life, the balance in Accumulated Depreciation will:

A.be greater under units−of−production depreciation than under straight-line depreciation

B. be a greater amount under straight-line depreciation than under double−declining−balance depreciation

C.be the same amount under all the depreciation methods

D.be a lesser amount under double−declining−balance depreciation than under units−of−production depreciation

3)On January 2, 2016, McNally's Extra Corporation acquired equipment for $120,000. The estimated life of the equipment is 5 years or 20,000 hours. The estimated residual value is $20,000. What is the balance in Accumulated Depreciation on December 31, 2017, if McNally's Extra Corporation uses the double−declining−balance method of depreciation?
A.$43,200
B.$76,800
C.$23,200
D.$36,000

4) Rhoundakona Corporation bought property, plant, and equipment on January 1, 2014, at a cost of $35,000. Estimated residual value is $5,000 and the estimated useful life is 8 years. The company uses straight−line
depreciation. On January 1, 2017, Rhoundakona's management sells the asset for $25,000. The gain or loss on disposal is:

A.$10,000 loss
B.$1,250 gain
C.$1,250 loss
D.$25,000 gain

Answer 1

1

Depreciation computed under double−declining−balance decreases because the book value used in the computation each year decreases

Option C is correct

2

At the end of an asset's useful life, the balance in Accumulated Depreciation will be the same amount under all the depreciation methods

Option C is correct

3

Double−declining−balance rate = 2*(1/5) = 40%

Depreciation for 2016 = 120000*40%= $30000

Depreciation for 2017 = (120000-30000)*40%= $36000

Balance in Accumulated Depreciation on December 31, 2017 = 30000+36000 = $36000

Option D is correct

4

Accumulated depreciation for 3 years = (35000-5000)*3/8= $11250

Book value on January 1, 2017 = 35000-11250= $23750

Gain on sale = 25000-23750 = $1,250 gain

Option B is correct