#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
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.
#11
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.
#12
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.
#13
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.
#14
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.