答案和详解如下: 1.A company is switching from straight-line depreciation to an accelerated method of depreciation. Assuming all other revenue and expenses are at the same levels for the next period, switching to an accelerated method will most likely increase the company’s: A) total assets on the balance sheet. B) taxes. C) fixed asset turnover ratio. D) net income/sales ratio. The correct answer was C) The use of an accelerated depreciation method will increase depreciation expenses early in the asset’s life. The book value of the asset will be lower. Net income and taxes will also be lower due to the increase in depreciation expense. Fixed asset turnover ratio (sales/fixed assets) will increase, because the book value of the fixed assets will be lower. 2.Which of the following statements comparing straight-line depreciation methods to alternative depreciation methods is least accurate? Companies that use: A) accelerated depreciation methods will decrease the amount of taxes in early years. B) straight-line depreciation methods will have higher book values for the assets on the balance sheet than companies that use accelerated depreciation. C) accelerated depreciation methods will increase the total amount of depreciation expense over the life of an asset. D) units-of-production and service hours methods to depreciate assets will overstate income during periods of low production. The correct answer was C) Accelerated depreciation methods will not change the total amount of depreciation expense over the life of an asset. Accelerated depreciation methods will increase the amount of depreciation expense in the early years of the asset’s life, but the depreciation expense will be less in the latter years of the asset’s life. 3.A carpet cleaning company uses service hours to depreciate the company’s assets. The company had very little business over the past year due to a poor economy. Which of the following is most accurate? A) Depreciation expense will be higher due to the decrease in demand for carpet cleaning equipment. B) The economic value of the carpet cleaning equipment will increase due to lower depreciation expense. C) Assets will be understated on the balance sheet. D) Income will be overstated on the income statement. The correct answer was D) Using service hours to estimate depreciation expense will overstate income during periods of low sales. When the revenues are low, it is likely that the company has suffered a decline in the economic value of the assets. However, depreciation expense will be low based on the low level of asset use. 4.Roger Margotta, the CFO of Brainchild, Inc., is considering several alternative methods of depreciation for long-term assets. With respect to double-declining method of depreciation, which of the following statements is the most accurate? A) Current ratio will increase over the life of the asset. B) Asset turnover ratio will decrease over the life of the asset. C) Return on Investment will increase over the life of the asset. D) Depreciation expense will increase over the life of the asset, thus showing a decreasing earnings trend. The correct answer was C) With the use of any accelerated method of depreciation, the deductions in assets and net income are greatest in the early years. For DDB, the greatest impact is year 1. After year 1, net income will increase, increasing ROI. 5.Slovac Company purchased a machine that has an estimated useful life of eight years for $7,500. Its salvage value is estimated at $500. What is the depreciation expense for the second year, assuming Slovac uses the double-declining balance method of depreciation? A) $1,438. B) $1,875. C) $3,750. D) $1,406. The correct answer was D) double declining balance depreciation rate = 2 x 1/8 = ¼ or 25% first year deprecation will be $7,500 x 0.25 = $1,875 second year deprecation will be ($7,500 - $1875) x 0.25 = $1,406 |