MASTERINGDEPRECIATION

TESTBANK

Section1DEPRECIATIONONTHEFINANCIALSTATEMENTSV.TAXRETURN

1. Thecostofaplantassetisrecognized:
a. whenitispaidfor.
b. asityieldsbenefitstothecompany.
c. intheperiodinwhichitisacquired.
d. intheperiodinwhichitissold.

2. Depreciationexpense:
a. mustbecomputedannually,butmayalsobecomputedforshorterperiods
b. maybecomputedeitherannuallyorforshorterperiods,butnotboth
c. mustbecomputedonceoverthelifeoftheasset
d. maybecomputedeitherannuallyoronceoverthelifeoftheasset

3. Thepurposeofdepreciationisto:
a. provideataxdeductionoverseveralyears.
b. matchanassetscostperyeartothedepreciablebasedividedbythe
numberofyearstheassetisexpectedtobeinservice.
c. matchanassetscosttotherevenuethattheassethelpsthecompany
produceeachyear.
d. noneoftheabove.

4. Whichofthefollowingstatementsabouttheaccumulateddepreciationaccount
iscorrect?
a. Itappearsonthebalancesheetandrepresentsthetotaldepreciation
expensetakeninthecurrentyear.
b. Itappearsonthebalancesheetandrepresentsthetotaldepreciation
expensetakeninallyearstodate.
c. Itappearsontheincomestatementandrepresentsthetotaldepreciation
expensetakeninthecurrentyear.
d. Itappearsontheincomestatementandrepresentsthetotaldepreciation
expensetakeninallyearstodate.

5. WhenaCPAexaminesacompanysfinancialstatementsandexpressesan
opiniononwhethertheymateriallyconformtoGAAPrules,thisserviceis
referredtoasa(n):
a. compilation
b. audit
c. review
d. noneoftheabove

Testbank 1
MasteringDepreciation

AmericanInstituteofProfessionalBookkeepers,2010

Testbank 2
MasteringDepreciation

Section2DEPRECIATIONUNDERGAAP(FORBOOKPURPOSES)

1. Acompanypurchaseslandandabuildingfor$300,000.Theappraisal
attributesafairmarketvalue(FMV)tothelandof$180,000andtothebuilding
of$220,000.Asaresult,thebuildingscostwillbebookedat:
a. $220,000
b. $165,000
c. $135,000
d. $180,000

2. Acompanypurchaseslandandabuildingfor$300,000.Theappraisal
attributesafairmarketvalue(FMV)tothelandof$180,000andtothebuilding
of$220,000.Asaresult,thelandscostwillbebookedat:
a. $220,000
b. $165,000
c. $135,000
d. $180,000

3. Yourfirmpurchasesabookcaseandyouaregiventhefollowingdata:
Cost $700
Salestax 35
Freight(paidbypurchaser) 40
Torecordthepurchase,you:
a. debitSalesTaxExpensefor$35.
b. debitFurniturefor$700.
c. debitFurniturefor$775.
d. debitFurniturefor$740.

4. Anassetsoriginalcostdoesnotinclude:
a. invoiceprice
b. freightin
c. setupcosts
d. freightout

5. Yourfirmpurchasesequipmentandyouaregiventhefollowingdata:
Cost $10,000
Salestax 700
Deliverycost 100
Installationcost 75
ForwhatamountdoyoudebittheEquipmentaccount?
a. $10,000
b. $10,700
c. $10,775
d. $10,875

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MasteringDepreciation

Section3THESTRAIGHTLINEMETHODOFDEPRECIATION
Assumeallcompaniesareonacalendaryearunlessotherwisestated.

1. OnJanuary1,20X1,yourcompany,whichusesthestraightlinemethod,
purchases3machines,recordedasfollows:
Cost SalvageValue UsefulLife
MachineNo.1 $6,000 $1,000 5years
MachineNo.2 6,000 1,000 10years
MachineNo.3 11,000 1,000 10years
Whatistotal20X1depreciationforthe3machines?
a. $2,500
b. $2,900
c. $1,250
d. $5,000

2. DepCousesthestraightlinemethod.Assetspurchasedbetweenthe1stand15th
aredepreciatedfortheentiremonth;assetspurchasedafterthe15thasthough
theywereacquiredthefollowingmonth.OnMarch20,20X1,DepCopurchases
for$9,000aprinterthatitexpectstolastfor5yearsandtohavearesidual
valueof$2,000.Whatis20X1depreciationexpensefortheprinter?
a. $1,000
b. $800
c. $1,050
d. $250

3. DepCousesthestraightlinemethod.Assetspurchasedbetweenthe1stand15th
aredepreciatedfortheentiremonth;assetspurchasedafterthe15thasthough
theywereacquiredthefollowingmonth.OnMarch20,20X1,DepCopurchases
for$9,000aprinterthatitexpectstolastfor5yearsandtohavearesidualvalue
of$2,000.Whatis20X2depreciationexpensefortheprinter?
a. $1,400
b. $800
c. $750
d. $250

4. DepCousesthestraightlinemethod.Assetspurchasedbetweenthe1stand15th
aredepreciatedfortheentiremonth;assetspurchasedafterthe15thasthough
theywereacquiredthefollowingmonth.OnMarch20,20X1,DepCopurchases
for$9,000aprinterthatitexpectstolastfor5yearsandhavearesidualvalueof
$2,000.WhatisthebalanceinDepCosAccumulatedDepreciationaccountasof
Dec.31,20X3?
a. $3,000
b. $3,850
c. $1,750

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MasteringDepreciation

d. Insufficientinformationtocalculate

5. OnJanuary1,20X1,PrimeCo,whichusesthestraightlinemethod,purchases
for$59,000amachinethatitexpectstolastfor10yearsandtohavearesidual
valueof$8,000.Whatisthemachinesbookvalueattheendof20X3?
a. $15,300
b. $35,700
c. $53,900
d. $43,700

6. OnJuly1,20X1,yourcompany,whichusesthestraightlinemethod,purchases
3machines,asfollows:
Cost SalvageValue UsefulLife
MachineNo.1 $80,000 $14,000 12years
MachineNo.2 55,000 10,000 8years
MachineNo.3 27,000 3,000 5years
Assetspurchasedbetweenthe1stand15tharedepreciatedfortheentiremonth;
assetspurchasedafterthe15thasthoughtheywereacquiredthefollowing
month.Whatistotal20X1depreciationforthe3machines?
a. $15,925
b. $9,471
c. $7,963
d. $18,942

7. RayCousesthestraightlinemethod.Assetspurchasedbetweenthe1stand15th
aredepreciatedfortheentiremonth;assetspurchasedafterthe15thasthough
theywereacquiredthefollowingmonth.OnMay12,20X1,RayCopurchasesfor
$25,000furniturethatitexpectstolastfor10yearsandtohavearesidual
valueof$1,000.Whatis20X1depreciationexpenseforthefurniture?
a. $1,600
b. $2,400
c. $1,200
d. $1,400

8. MyCousesthestraightlinemethod.Assetspurchasedbetweenthe1stand15th
aredepreciatedfortheentiremonth;assetspurchasedafterthe15thasthough
theywereacquiredthefollowingmonth.OnApril22,20X1,MyCopurchasesfor
$50,000equipmentthatitexpectstolastfor10yearsandtohavearesidual
valueof$5,000.Whatis20X2depreciationexpensefortheequipment?
a. $3,375
b. $3,000
c. $4,500
d. $5,000

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9. ZyCousesthestraightlinemethod.Assetspurchasedbetweenthe1stand15th
aredepreciatedfortheentiremonth;assetspurchasedafterthe15thasthough
theywereacquiredthefollowingmonth.OnMay2,20X1,ZyCopurchasesfor
$25,000furniturethatitexpectstolastfor10yearsandtohavearesidual
valueof$1,000.Whatisthebalanceintheaccumulateddepreciationaccountat
theendof20X3?
a. $2,400
b. $6,400
c. $7,200
d. Insufficientinformationtocalculate

10. UnderGAAP,thestraightlinedepreciationrateequals:
a. Depreciablebase/Yearsofestimatedlife
b. DepreciationrateDepreciablebase
c. (OriginalcostResidualvalue)/Yearsofestimatedlife
d. 1/Yearsofestimatedlife

11. OnJanuary1,20X1,PrimeCo,whichusesthestraightlinemethod,purchases
for$59,000amachinethatitexpectstolastfor10yearsandtohavearesidual
valueof$8,000.WhatisthebalanceintheAccumulatedDepreciationaccount
attheendof20X4?
a. $20,400
b. $15,300
c. $23,600
d. $38,600

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MasteringDepreciation

Section4THEUNITSOFPRODUCTION(UOP)METHODOF
DEPRECIATION

1. GeorgiaInc.,whichusesUOPdepreciation,purchasesfor$16,000amachine
withausefullifeof15,000machinehoursandasalvagevalueof$1,000.You
aregiventhefollowingdata:
20X1 3,000
20X2 2,200
20X3 6,170
20X4 5,300
Depreciationexpenseonthemachinefor20X4is:
a. $3,000
b. $3,630
c. $5,300
d. $3,200

2. OnMay1,20X1,yourcompany,whichusesUOPdepreciation,purchasesfor
$260,000amachinewithausefullifeof2,520,000unitsandaresidualvalueof
$10,000.In20X1,themachineproduces100,000units;in20X2,120,000units.
WhatisthebalanceinAccumulatedDepreciationattheendof20X2?
a. $10,912
b. $11,904
c. $21,824
d. $9,920

3. Ifyougetamemostatingyourfirmusesthefollowingformulatocompute
depreciation,whatdepreciationmethodwillyoubeusing?
(HistoricalcostSalvagevalue)/Totalestimatedunitsofoutput
a. Straightline
b. Unitsofproduction
c. Sumoftheyearsdigits
d. Decliningbalance

4. OnJanuary1,20X1,ZipCo,whichusesUOPdepreciation,purchasesfor
$24,000,atruckwithanestimatedusefullifeof100,000milesandaresidual
valueof$4,000.Milesdrivenareasfollows:
Year Miles
20X1 20,000
20X2 15,000
20X3 10,000
20X4 25,000
20X5 30,000
Depreciationexpenseforthetruckis20X1is:

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a. $4,000
b. $4,800
c. $20,000
d. $24,000
5. OnJuly1,20X1,ZipCo,whichusesUOPdepreciation,purchasesfor$36,000a
truckwithanestimatedusefullifeof60,000milesandaresidualvalueof
$6,000.Milesdrivenareasfollows:
Year Miles
20X1 5,000
20X2 10,000
20X3 20,000
20X4 25,000
20X5 30,000
ThebookvalueofthetruckonDecember31,20X3is:
a. $18,500
b. $26,000
c. $12,500
d. $33,500

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MasteringDepreciation

Section5THEDECLININGBALANCE(DB)METHODOFDEPRECIATION
Assumeallcompaniesareonacalendaryearunlessotherwisestated.

1. YourcompanyusestheDDBmethod.Assetspurchasedbetweenthe1stand15th
aredepreciatedfortheentiremonth;assetspurchasedafterthe15thasthough
theywereacquiredthefollowingmonth.OnMay1,20X1,itpurchasesfor
$250,000amachinewithausefullifeof12yearsandasalvagevalueof
$10,000.Whatisthemachine'sbookvalueattheendof20X2?
a. $173,611
b. $185,185
c. $208,323
d. $215,278

2. YourcompanyusestheDDBmethod.Assetspurchasedbetweenthe1stand15th
aredepreciatedfortheentiremonth;assetspurchasedafterthe15thasthough
theywereacquiredthefollowingmonth.OnJuly1,20X1,itpurchasesfor
$200,000machinewithausefullifeof10yearsandasalvagevalueof$20,000.
Whatis20X2depreciationexpense?
a. $38,800
b. $32,400
c. $32,000
d. $36,000

3. OnJanuary1,20X1,yourcompanypurchasesfor$500,000amachinewitha
usefullifeof12yearsandasalvagevalueof$25,000.Ifyourcompanyuses
DDBdepreciation,whatis2004expense?
a. $48,225
b. $45,814
c. $47,839
d. $45,428

4. YourcompanyusestheDDBmethod.Assetspurchasedbetweenthe1stand15th
aredepreciatedfortheentiremonth;assetspurchasedafterthe15thasthough
theywereacquiredthefollowingmonth.OnApril6,20X1,yourfirmpurchases
for$250,000amachinethatmanagementestimateswilllast15yearsandhave
asalvagevalueof$10,000.Whatis20X1depreciationexpense?
a. $21,333
b. $25,000
c. $33,333
d. $32,000

5. Yourfirmuses150%depreciation.Assetspurchasedbetweenthe1stand15th
aredepreciatedfortheentiremonth;assetspurchasedafterthe15thasthough
theywereacquiredthefollowingmonth.OnMarch12,20X1,yourcompany
purchasesfor$200,000amachinethatitestimateswilllast10yearsandhave
asalvagevalueof$60,000.Whatis20X1depreciationexpense?

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a. $21,000
b. $30,000
c. $17,500
d. $25,000

6. YourcompanyusestheDDBmethod.Assetspurchasedbetweenthe1stand15th
aredepreciatedfortheentiremonth;assetspurchasedafterthe15thasthough
theywereacquiredthefollowingmonth.OnJanuary12,20X1,yourcompany
purchasesfor$200,000amachinethatmanagementestimateswilllast10years
andhaveasalvagevalueof$50,000.Whatis20X2depreciationexpense?
a. $32,000
b. $40,000
c. $30,000
d. $24,000

7. OnJanuary22,20X1,yourcompanypurchasesamachinefor$200,000.Your
companyuses150%DBdepreciation.Assetspurchasedbetweenthe1stand15th
aredepreciatedfortheentiremonth;assetspurchasedafterthe15thasthough
acquiredthefollowingmonth.Managementestimatesthemachinewilllast10
yearsandhaveasalvagevalueof$60,000.Whatis20X1depreciationexpense?
a. $21,000
b. $27,500
c. $19,250
d. $25,667

8. OnJuly8,20X1,yourcompanypurchasesamachinefor$100,000.Yourfirm
usestheDDBmethod.Assetspurchasedbetweenthe1stand15tharedepreciated
fortheentiremonth;assetspurchasedafterthe15thasthoughacquiredthe
followingmonth.Managementestimatesthemachinewilllast8yearsandhave
asalvagevalueof$35,000.Thebookvalueattheendof20X1is:
a. $32,000
b. $12,500
c. $68,000
d. $87,500

9. OnNovember17,20X1,yourcompanypurchasesabuildingfor$500,000.Your
companyusestheDDBmethod.Assetspurchasedbetweenthe1stand15thare
depreciatedfortheentiremonth;assetspurchasedafterthe15thasthough
acquiredthefollowingmonth.Managementestimatesthebuildingwilllast50
yearsandhaveasalvagevalueof$150,000.Whatis20X1depreciationexpense?
a. $20,000
b. $1,667
c. $3,333
d. $14,000

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10. OnApril21,20X1,yourcompanypurchasesabuildingfor$600,000.Yourfirm
usestheDDBmethod.Assetspurchasedbetweenthe1stand15tharedepreciated
fortheentiremonth;assetspurchasedafterthe15thasthoughacquiredthe
followingmonth.Managementestimatesthebuildingwilllast40yearsandhave
asalvagevalueof$100,000.Depreciationexpensefor20X1is:
a. $20,000
b. $16,667
c. $22,500
d. $30,000

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 MasteringDepreciation

Section6THESUMOFTHEYEARSDIGITS(SYD)METHODOFDEPRECIATION
Assumeallcompaniesareonacalendaryearunlessotherwisestated.
1. OnJanuary1,20X1,yourcompanypurchasesfor$550,000amachinewithan
estimatedusefullifeof10yearsandasalvagevalueof$50,000.UsingSYD
depreciation,the20X2depreciationexpenseis:
a. $81,818
b. $90,000
c. $18,182
d. $200,000

2. OnJanuary1,20X1,yourcompanypurchasesfor$450,000amachinewithan
estimatedusefullifeof7yearsandasalvagevalueof$40,000.UsingSYD
depreciation,Whatis20X4depreciationexpense?
a. $73,214
b. $64,286
c. $58,571
d. $87,857

3. OnJuly11,20X1,yourfirmpurchasesfor$125,000amachinewithanestimated
usefullifeof8yearsandasalvagevalueof$5,000.YourfirmusesSYDdepreciation
anddepreciatesassetspurchasedbetweenthe1stand15thofthemonthfortheentire
monthandassetspurchasedafterthe15thasthoughtheywereacquiredthe
followingmonth.Whatis20X1depreciationexpense?
a. $11,111
b. $13,333
c. $26,667
d. $13,889

4. OnJanuary12,20X1,yourcompanypurchasesfor$125,000amachinewithan
estimatedusefullifeof15yearsandasalvageof$5,000.Yourcompanyuses
SYDdepreciationanddepreciatesassetspurchasedbetweenthe1stand15thof
themonthfortheentiremonthandassetspurchasedafterthe15 thasthough
theywereacquiredthefollowingmonth.Whatisthemachinesbookvalueat
theendof20X1?
a. $107,143
b. $115,000
c. $113,718
d. $110,000

5. OnFebruary28,20X1,yourcompanypurchasesfor$150,000amachinewith
anestimatedusefullifeoflast10yearsandasalvagevalueof$10,000.Your
companyusesSYDdepreciationanddepreciatesassetspurchasedbetweenthe
1stand15thofthemonthfortheentiremonthandassetspurchasedafterthe
15thasthoughtheywereacquiredthefollowingmonth.Whatis20X1
depreciationexpense?
a. $21,212

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b. $23,333
c. $25,455
d. $27,273

6. OnMay1,20X1,yourcompanypurchasesfor$260,000amachinewithan
estimatedusefullifeof12yearsandasalvagevalueof$10,000.Yourcompany
usesSYDdepreciationanddepreciatesassetspurchasedbetweenthe1stand
15thofthemonthfortheentiremonthandassetspurchasedafterthe15 thas
thoughtheywereacquiredthefollowingmonth.Whatis20X2depreciation
expense?
a. $38,462
b. $38,256
c. $36,325
d. $35,256

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MasteringDepreciation

Section7DEPRECIATIONUNDERFEDERALINCOMETAXDEPRECATIONRULES

1. Belowarefourassetpurchasesmadein2009.
Asset Cost Date
OfficeTable $1,000 January1,2009
OfficeDesk 1,500 September29,2009
FileCabinet 2,000 October15,2009
Computer 6,000 December31,2009
Whatisthemaximum2009Section179deductionforthesepurchases?
a. $10,500
b. $2,500
c. $8,000
d. $0

2. OnMay11,2009,yourcalendaryearfirmpays$6,000forausedcomputer
server,itsonlyassetpurchasefortheyear,andestimatesthattheserverwill
haveasalvagevalueof$500.IfnoSection179deductionistaken,whatisyour
firmsmaximum2009deductionfordepreciation?
Table1:HalfYearConvention
200% Declining Balance
Year 3Year 5Year 7Year
1 33.33% 20.00% 14.29%
2 44.45% 32.00% 24.49%
3 14.81% 19.20% 17.49%
4 7.41% 11.52% 12.49%
5 11.52% 8.93%
6 5.76% 8.92%
7 8.93%
8 4.46%
a. $2,000
b. $1,200
c. $1,100
d. $869

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3. Depreciationofpropertyotherthanrealpropertybeginsinthemiddleofthe
quarterinwhichitisplacedinservicewhenmorethan:
a. 25%ofthetotalcostofalldepreciablepropertyplacedinserviceduringthe
yearoccursduringthefourthquarter.
b. 40%ofthetotalcostofSection179propertyplacedinserviceduringthe
yearoccursduringthefourthquarter.
c. 40%ofthetotalcostofalldepreciablepropertyplacedinserviceduringthe
yearoccursduringthefourthquarter.
d. 25%ofthetotalcostofSection179propertyplacedinserviceduringthe
yearoccursduringthefourthquarter.

4. OnMay11,2009,yourcalendaryearfirmpays$10,000foranewmachine,its
onlyassetpurchasefortheyear,andestimatesthatthemachinewillhavea
salvagevalueof$1,000.IfyourfirmdoesnottakeaSection179deduction,how
muchdepreciationwillthefirmclaimonits2009federalincometaxreturn
basedontheMACRStablebelow?
Table1:HalfYearConvention
200% Declining Balance
Year 3Year 5Year 7Year
1 33.33% 20.00% 14.29%
2 44.45% 32.00% 24.49%
3 14.81% 19.20% 17.49%
4 7.41% 11.52% 12.49%
5 11.52% 8.93%
6 5.76% 8.92%
7 8.93%
8 4.46%
a. $6,000
b. $1,429
c. $2,000
d. $5,715

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5. OnMay11,2009,yourcalendaryearfirmpurchasesfor$10,000ausedmachine
withanestimatedsalvagevalueof$1,000.Ifthemachineistheonlyfixedasset
purchasedin2009andnoSection179deductionistaken,whatisyourfirms
maximum2009deductionfordepreciation?
Table1:HalfYearConvention
200% Declining Balance
Year 3Year 5Year 7Year
1 33.33% 20.00% 14.29%
2 44.45% 32.00% 24.49%
3 14.81% 19.20% 17.49%
4 7.41% 11.52% 12.49%
5 11.52% 8.93%
6 5.76% 8.92%
7 8.93%
8 4.46%
a. $6,000
b. $1,429
c. $2,000
d. $5,715

6. DepreciationoffixedassetsunderGAAPv.fortaxpurposesisbasedon:
a. originalcostlesssalvagevalueunderGAAPv.originalcostfortax
purposes.
b. originalcostforGAAPv.theoriginalcostlesssalvagevaluefortax
purposes.
c. originalcostlessthesalvagevaluebothunderGAAPandfortaxpurposes.
d. originalcostbothunderGAAPandfortaxpurposes.

7. Generally,underMACRS,therecoveryperiodforacomputeris:
a. 3years
b. 4years
c. 5years
d. 7years

8. UnderMACRS,therecoveryperiodforcommercialrealestateplacedinservice
in2009is:
a. 31years
b. 27years
c. 39years
d. 7years

9. UnderMACRS,therecoveryperiodforresidentialrealpropertyis:
a. 31years
b. 27years

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c. 39years
d. 7years

10. Generally,underMACRS,therecoveryperiodformachineryis:
a. 3years
b. 4years
c. 5years
d. 7years

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Section8TAXDEPRECIATIONOFPASSENGERCARSANDOTHERVEHICLES

1. IfausedSUVpurchasedin2009costs$50,000andweighs5,800pounds,the
maximumSection179expensethatcanbetakenis:
a. $0
b. $2,960
c. $25,000
d. $50,000

2. IfanewSUVthatcosts$50,000andweighing6,500poundsisplacedinservice
in2009,themaximumSection179expensethatcanbetakenis:
a. $0
b. $10,960
c. $25,000
d. $50,000

3. Ifanewpassengerautothatcosts$50,000andweighs5,000poundsisplacedin
servicein2009,themaximumSection179expensethatcanbetakenis:
a. $0
b. $10,960
c. $25,000
d. $50,000

4. UnderMACRS,therecoveryperiodforapassengerautois:
a. 3years
b. 4years
c. 5years
d. 7years

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