Reading 37 Analysis of Long-Lived Assets: Part II - Analysis of Depreciation and Impairment 18-A company is switc ing from straig

t-line depreciation to an accelerated met od of depreciation! Ass"ming all ot er reven"e and e#penses are at t e same levels for t e ne#t period$ switc ing to an accelerated met od will most likely increase t e company%s: A) total assets on the balance sheet. B) taxes. C) net income/sales ratio. D) fixed asset turnover ratio. 1&-' ic of t e following statements comparing straig t-line depreciation met ods to alternative depreciation met ods is least accurate( )ompanies t at "se: A) accelerated depreciation methods will decrease the amount of taxes in early years. B) C) D) straight-line depreciation methods will have higher boo values for the assets on the balance sheet than companies that use accelerated depreciation. accelerated depreciation methods will increase the total amount of depreciation expense over the life of an asset. units-of-production and service hours methods to depreciate assets will overstate income during periods of low production.

*+-A carpet cleaning company "ses service o"rs to depreciate t e company%s assets! , e company ad very little -"siness over t e past year d"e to a poor economy! ' ic of t e following is most accurate( A) Depreciation expense will be higher due to the decrease in demand for carpet cleaning e!uipment. #he economic value of the carpet cleaning e!uipment will increase due to lower depreciation expense.

B) "ncome will be overstated on the income statement. C)

D) Assets will be understated on the balance sheet. *1-.lovac )ompany p"rc ased a mac ine t at as an estimated "sef"l life of eig t years for /7$0++! Its salvage val"e is estimated at /0++! ' at is t e depreciation e#pense for t e second year$ ass"ming .lovac "ses t e do"-ledeclining -alance met od of depreciation( A) $%&'(). B) $%&'*+. C) $%&),-. D) $(&,-*. **-' at is t e depreciation e#pense for t e t ird year$ ass"ming .lovac "ses t e s"m-ofyears digits met od of depreciation(

A) $./.. B) $-%). C) $%&%+,. D) $-)(. *3-, is information pertains to e1"ipment owned -y 2rigade )ompany! )ost of e1"ipment /1+$+++ 3stimated resid"al val"e /*$+++ 3stimated "sef"l life 0 years Depreciation met od .traig t-line

, e acc"m"lated depreciation at t e end of year 3 is: A) $%&+**. B) $'&)**. C) $(&.**. D) $-&.**. *4-After t ree years$ 2rigade e#pects t at it will "se t e e1"ipment for a total of si# years 5i!e!$ 3 more years6! 2rigade estimates no c ange in t e resid"al val"e! ' at is t e depreciation e#pense for year 4( A) $%&*+,. B) $%&+**. C) $%&,((. D) $)**. *0-7n 8an"ary 1$ *++0$ 893 )orporation c anged from t e straig t line met od to an accelerated met od of depreciation! :nder t e accelerated met od$ t e acc"m"lated depreciation t ro"g Decem-er 31$ *++4$ was /;++$+++ ig er t an if t e straig t line met od ad -een "sed! 893%s income ta# rate is 4+<! ' at is t e c"m"lative effect of t is c ange in acco"nting principle( A) $(+*&***. B) $.'*&***. C) $+**&***. D) $*.

*;-893 ac1"ired an asset on 8an"ary 1$ *++4$ for /;+$+++ cas ! At t at time 893 estimated t e asset wo"ld last 1+ years and ave no salvage! D"ring *++; 893 estimated t e remaining life of t e asset to -e only t ree more years wit a salvage val"e of /3$+++! If 893 "ses straig t line depreciation$ w at is t e depreciation e#pense for *++;( A) $%-&***. B) $+&***. C) $%.&***. D) $%+&***. *7-7n 8an"ary 1$ *++4$ 893 p"rc ased a tr"c= t at cost /*4$+++! , e tr"c= ad an estimated "sef"l life of 0 years and /4$+++ salvage val"e! , e amo"nt of depreciation e#pense recogni>ed in *++; ass"ming t at 893 "ses t e do"-le declining -alance met od is: A) $'&***. B) $-&,+*. C) $)&***. D) $(&'-+. *8-Determine t e average age as a percent of deprecia-le life and t e average age of t e plant and e1"ipment given t e following information: Depreciation e#pense is /10$+++! Plant and e1"ipment is /*0+$+++! Acc"m"lated depreciation is /;+$+++! Average Age 01) .-1 .'1 .-1 .'1 Average Age 02ears) ' + + '

A) B) C) D)

*&-A firm "sing straig t-line depreciation reports t e following financial information: ?ross investment in fi#ed assets of /8&$1;7$*+0! Acc"m"lated depreciation of /30$341$773! Ann"al depreciation e#pense of /3$880$3&8!

, e appro#imate age of t e fi#ed assets is: A) ..-. years. B) %(.)- years. C) /.%* years. D) .../- years.

3+-3nding gross investment@depreciation e#pense is "sed to estimate t e average: A) B) C) D)

depreciable life. age. age as a percent of depreciable life. depreciation.

31-?ross plant and e1"ipment /1$*0+$+++ Depreciation e#pense /*30$+++ Acc"m"lated depreciation /7*0$+++ , e average deprecia-le life of plant and e1"ipment is: A) (.*/ years. B) ...( years. C) -.(. years. D) ).'* years. 3*-Average remaining "sef"l life of t e plant and e1"ipment is: A) ...( years. B) (.*/ years. C) '.(. years. D) -.(. years. 33-, e average age of plant and e1"ipment is: A) %.'* years. B) ...( years. C) -.(. years. D) (.*/ years. 34-An analyst will most likely "se t e average age of deprecia-le assets to estimate t e company%s: A) future dividend payments. B) cash flows.

C) near-term financing re!uirements. D) earnings potential. 30-An asset is impaired w en: A) B) C) D)

accumulated depreciation exceeds ac!uisition costs. accumulated depreciation plus salvage value exceeds ac!uisition costs. the present value of future cash flows exceeds the carrying amount of the asset. the firm can no longer fully recover the carrying amount of the asset.

3;-) anges in asset lives and salvage val"e are c anges in acco"nting: A) B) C) D)

estimates and no specific disclosures are re!uired. estimates and specific disclosures are re!uired. principle and specific disclosures are re!uired. principle and no specific disclosures are re!uired.

37-, e following infor mation as -een gat ered regarding 'illiams Investing$ w ic "ses t e straig t-line met od for depreciation! Deprecia-le life of 8 years on its assets! Aet -oo= val"e of assets is /4+ million! Acc"m"lated depreciation is /*8 million! .alvage val"e is /1* million! It recently revised t e estimates for t e remaining "sef"l life of its assets from 4 years to ; years! Aet income -efore t e c ange is /13 million! , e effective ta# rate for t e firm is 4+ percent!

Depreciation e#pense for 'illiams Investing will decrease -y: A) $(.+ million. B) $%.' million. C) $+.- million.

D) $..( million. 38-Aet income for 'illiams Investing will increase -y3 A) %(.)-1. B) %-.(/1. C) %*.+.1. D) /..(1.

3&-' en t e depreciation met od is c anged from an accelerated met od to t e straig t-line met od$ w ic of t e following statements a-o"t t e impact on financial statements is least accurate( A) B) C) D)

456 and 45A will increase due to the increase in net income. 456 and 45A will decrease due to the increase in e!uity and assets. 7o cumulative effect exists if the change is applied only to newly ac!uired assets. Depreciation expense will decrease and net income will increase.

4+-A2) Investments as p"rc ased a new comp"ter system for /1!4 million and decided to depreciate it over a 4-year period on a s"m-of-years% digits 5.BD6 met od! A2) estimates t at t e salvage val"e will -e /*++$+++ at t e end of t e fo"r years! ' at will -e t e depreciation e#pense for t e t ird year( A) $(**&***. B) $.'*&***. C) $.,-&***. D) $%)+&***. 41-Rasm"s )ompany p"rc ased e1"ipment for /&;$+++! , e estimated "sef"l life is t ree years$ and it is e#pected to ave a salvage val"e of /*4$+++ at t e end of its "sef"l life! , e depreciation in t e t ird year was /1*$+++! ' at met od of depreciation did Rasm"s most li=ely "se( A) 8um-of-years digits. B) 8traight 9ine. C) Double-declining balance. D) :nits of ;roduction method.

4*-In its first year of -"siness$ Digmore )orporation%s -alance s eet s ows gross fi#ed assets at /&+ million and acc"m"lated depreciation of /1+ million! If t e estimated salvage val"e of t ese assets is /1+ million$ and t e original estimated "sef"l life is 8 years$ w at met od of depreciation did Digmore most likely "se( A) 8um-of-years digits. B) Double-declining balance. C) :nits of production. D) 8traight 9ine.