#1
Which of the following is considered a fixed asset?
Building
ExplanationFixed assets are long-term tangible assets held for business use and include buildings.
#2
What is depreciation?
The process of reducing the value of an asset over its useful life
ExplanationDepreciation is the systematic allocation of the cost of an asset over its expected useful life.
#3
Which of the following is NOT a fixed asset?
Inventory
ExplanationInventory is a current asset, not a long-term fixed asset.
#4
What is the salvage value of an asset?
The estimated residual value of an asset at the end of its useful life
ExplanationSalvage value is the expected value of an asset at the end of its useful life.
#5
Which depreciation method allocates an equal amount of depreciation expense each year of the asset's useful life?
Straight-line depreciation
ExplanationStraight-line depreciation evenly distributes the cost of an asset over its useful life.
#6
Which of the following is NOT a factor in determining depreciation expense under the straight-line method?
Maintenance costs
ExplanationMaintenance costs are not considered when calculating depreciation under the straight-line method.
#7
Which of the following is a contra account to accumulated depreciation?
Accumulated appreciation
ExplanationAccumulated appreciation is a contra account representing the total increase in the value of an asset.
#8
What happens to book value when depreciation expense is recorded?
Decreases
ExplanationDepreciation decreases the book value of an asset on the balance sheet.
#9
Which of the following methods of depreciation results in the highest depreciation expense in the first year?
Double-declining balance depreciation
ExplanationDouble-declining balance method front-loads depreciation, resulting in higher expenses initially.
#10
How does accumulated depreciation affect the balance sheet?
Decreases assets and increases liabilities
ExplanationAccumulated depreciation reduces asset value and increases liabilities on the balance sheet.
#11
Which of the following is true about capitalizing versus expensing costs related to fixed assets?
Capitalizing costs decreases assets in the short term.
ExplanationCapitalizing costs involves allocating them as assets, initially decreasing assets.
#12
What is the main advantage of using the double-declining balance method of depreciation?
It accelerates depreciation in the early years of an asset's life.
ExplanationDouble-declining balance method accelerates depreciation, recognizing higher expenses initially.
#13
What is the purpose of impairment testing for fixed assets?
To ensure that the carrying amount of assets is not overstated
ExplanationImpairment testing ensures that the reported value of assets accurately reflects their actual value.
#14
Which of the following factors affects the choice of depreciation method?
The age of the asset
ExplanationThe age of the asset influences the selection of an appropriate depreciation method.
#15
What is the formula for calculating depreciation expense using the straight-line method?
(Cost of the asset - Salvage value) / Useful life
ExplanationThe straight-line method formula is (Cost - Salvage value) / Useful life.
#16
Under which method of depreciation does an asset's depreciation expense vary based on its usage?
Units of production depreciation
ExplanationUnits of production depreciation allocates costs based on the actual usage of the asset.
#17
Which of the following is NOT a reason for depreciating fixed assets?
To adjust for inflation
ExplanationDepreciation is not used to adjust for inflation but to allocate the cost of an asset over time.
#18
When using the sum-of-the-years'-digits method, which factor decreases each year?
Useful life
ExplanationIn the sum-of-the-years'-digits method, the useful life factor decreases each year.
#19
What is the double-declining balance method of depreciation based on?
Asset's historical cost
ExplanationDouble-declining balance method uses a percentage applied to the historical cost of the asset.
#20
Which of the following statements about accumulated depreciation is correct?
It represents the total amount of depreciation expense recorded to date.
ExplanationAccumulated depreciation is the cumulative total of recorded depreciation expenses.
#21
What is the formula for calculating depreciation expense using the units of production method?
(Cost of the asset / Total expected units of production) * Actual units produced
ExplanationUnits of production method calculates depreciation based on actual usage.
#22
Which of the following depreciation methods results in the lowest depreciation expense in the first year?
Straight-line depreciation
ExplanationStraight-line depreciation evenly distributes costs, resulting in lower initial expenses.
#23
In which financial statement is accumulated depreciation reported?
Balance sheet
ExplanationAccumulated depreciation is reported on the balance sheet as a deduction from the asset's value.
#24
Which of the following depreciation methods results in a decreasing annual depreciation expense over the asset's useful life?
Sum-of-the-years'-digits depreciation
ExplanationSum-of-the-years'-digits method leads to decreasing depreciation expenses over time.
#25
What is the impact of a change in estimate of an asset's useful life on depreciation expense?
Increase depreciation expense
ExplanationA change in estimated useful life may result in an increase in depreciation expense.