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# Reading 32: Understanding the Income Statement - LOS e, (Pa

 Q1. Walsh Furniture has purchased a machine with a 7-year useful life for \$250,000. At the end of its life it will have an estimated     salvage value of \$15,000. Using the double-declining balance (DDB) method, depreciation expense in year 2 is closest to: A)   \$51,020.B)   \$58,750.C)   \$71,430.Q2. In its first year of business, Digmore Corporation’s balance sheet shows gross fixed assets at \$90 million and accumulated depreciation of \$10 million. If the estimated salvage value of these assets is \$10 million, and the original estimated useful life is 8 years, what method of depreciation did Digmore most likely use? A)   Units of production.B)   Double-declining-balance.C)   Straight Line.Q3. On January 1, 2004, JME purchased a truck that cost \$24,000. The truck had an estimated useful life of 5 years and \$4,000 salvage value. The amount of depreciation expense recognized in 2006 assuming that JME uses the double declining balance method is: A)   \$5,760.B)   \$3,456. C)   \$4,000. Q4. JME acquired an asset on January 1, 2004, for \$60,000 cash. At that time JME estimated the asset would last 10 years and have no salvage. During 2006 JME estimated the remaining life of the asset to be only three more years with a salvage value of \$3,000. If JME uses straight line depreciation, what is the depreciation expense for 2006? A)   \$6,000.B)   \$15,000. C)   \$16,000. Q5. This information pertains to equipment owned by Brigade Company. §           Cost of equipment: \$10,000. §           Estimated residual value: \$2,000. §           Estimated useful life: 5 years. §           Depreciation method: straight-line. The accumulated depreciation at the end of year 3 is: A)   \$1,600. B)   \$4,800.C)   \$5,200. Q6. 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)   \$1,406.

### 相关主题：

Q1. Walsh Furniture has purchased a machine with a 7-year useful life for \$250,000. At the end of its life it will have an estimated

salvage value of \$15,000. Using the double-declining balance (DDB) method, depreciation expense in year 2 is closest to:

A)   \$51,020.

B)   \$58,750.

C)   \$71,430.

 Year 2 / Depreciable Life × Book Value atBeginning of the Year = Depreciation 1 0.2857 250,000 71,429 2 0.2857 178,571 51,020

\$33,570 would be the depreciation expense if straight-line depreciation is used. \$58,750 would the depreciation in year 1 if the sum of the years' digits method was used.

Q2. In its first year of business, Digmore Corporation’s balance sheet shows gross fixed assets at \$90 million and accumulated depreciation of \$10 million. If the estimated salvage value of these assets is \$10 million, and the original estimated useful life is 8 years, what method of depreciation did Digmore most likely use?

A)   Units of production.

B)   Double-declining-balance.

C)   Straight Line.

\$90 − \$10 million = \$80 million; \$80 million / 8 = \$10 million depreciation per year under Straight Line depreciation.

Q3. On January 1, 2004, JME purchased a truck that cost \$24,000. The truck had an estimated useful life of 5 years and \$4,000

salvage value. The amount of depreciation expense recognized in 2006 assuming that JME uses the double declining balance

method is:

A)   \$5,760.

B)   \$3,456.

C)   \$4,000.

yr. 2004 = 24,000 × 2/5 = 9,600

yr. 2005 = (24,000 − 9,600) × 2/5 = 5,760

yr. 2006 = (24,000 − 9,600 − 5,760) × 2/5 = 3,456

Q4. JME acquired an asset on January 1, 2004, for \$60,000 cash. At that time JME estimated the asset would last 10 years and

have no salvage. During 2006 JME estimated the remaining life of the asset to be only three more years with a salvage value of

\$3,000. If JME uses straight line depreciation, what is the depreciation expense for 2006?

A)   \$6,000.

B)   \$15,000.

C)   \$16,000.

first two years = (60,000 − 0) / 10 =  6,000 per year

yr. 2006 = (60,000 − 12,000 − 3,000) / 3  = 15,000

Q5. This information pertains to equipment owned by Brigade Company.

§           Cost of equipment: \$10,000.

§           Estimated residual value: \$2,000.

§           Estimated useful life: 5 years.

§           Depreciation method: straight-line.

The accumulated depreciation at the end of year 3 is:

A)   \$1,600.

B)   \$4,800.

C)   \$5,200.

Accumulated depreciation at the end of year 3 = [(\$10,000 − \$2,000) / 5] × 3 = \$4,800

Q6. 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)   \$1,406.

double-declining balance depreciation rate = 2 × 1/8 = ¼ or 25%

first year deprecation will be \$7,500 × 0.25 = \$1,875

second year deprecation will be (\$7,500 − \$1,875) × 0.25 = \$1,406

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