Wednesday, October 18, 2006. Chapter 8-2
1. Marco, Inc. bought a machine for its new factory with a residual value of $20,000 for $200,000. The estimated life of this asset is 5 years. Calculate how much depreciation expense will be each year using the straight-line depreciation method.
a. $80,000 c. $40,000
b. $36,000 d. $18,000
2. Marco, Inc. decided to switch to the double-declining balance method of depreciation instead. How much will Marco, Inc. charge to its depreciation expense account at the end of year 1 and year 2 if it uses twice the straight-line rate?
a. $80,000 and 48,000 c. $80,000 and 40,000
b. $24,000 and 80,000 d. $80,000 and 36,000
3. Marco, Inc. has now decided to allocate 900,000 units of production to this machine instead. If it produced 105,000 units in the first year, what will be the depreciation expense for that year?
a. $23333.3 c. $21,333.3
b. $21,000 d. $24,000
4. If Marco, Inc. wants a higher depreciation expense in the first few years, what method will he use?
5. The use of the straight-line method of depreciation results in the same dollar amount allocated to depreciation every year?
a. True
b. False
6. The Double-Declining Balance method of depreciation allocates higher dollar amounts of depreciation expense to the latter (last) few years of the estimated life.
a. True
b. False
7. Rita’s Pita Company bought a new dough machine at the beginning of the year at a cost of $7,600. The estimated useful life was four years, and the residual value was $800. Assume that the estimated productive life of the machine was 10,000 hours. Actual annual usage was 3,500 hours in year 1; 3,200 hours in year 2; 2,200 hours in year 3; and 1,100 hours in year 4.
Calculate depreciation expense for years 1-4: (round your answers to the nearest dollar)
a. Straight-line
b. Double-declining balance
Year 1:
Year 2:
Year 3:
Year 4:
c. Units-of-production
Year 1:
Year 2:
Year 3:
Year 4: