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Exam 17: Depreciation

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Question 1

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Reese Hardware purchased a new industrial size tool maker for $19,600. Shipping charges were $300 and installation amounted to $480. The tool maker is estimated to have a 5 year life and a residual value of $1,000. Reese elects to use the sum-of-the years' digits method. A)What is the depreciation rate fraction for year 1? B)What is the amount of depreciation for year 2?

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Question 2

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A bulldozer purchased by Miner Corporation is expected to last 7 years. The purchase price was $23,800. Shipping costs were $266 and initial setup charges were $393. The trade-in value is $2,204. Using the straight-line depreciation method, calculate the accumulated depreciation at the end of year 3.

A) $12,611.37
B) $9,537.86
C) $9,937.32
D) $8,833.87

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Question 3

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OverRoads Van Lines purchased an over-the-road tractor for $181,880. Use MACRS and Tables 17-1 and 17-2 from your text to find the book value at the end of year 3. (Round to the nearest dollar)

Forest Agricultural Products purchased new equipment for $359,700 to process tree top oil products. Using MACRS and Tables 17-1 and 17-2 from your text, what is the accumulated depreciation at the end of year 8? (Round to the nearest dollar)

Complete the schedule as it relates to the sum-of-the years' digits method of depreciation: $\begin{array}{c}\text {Sum of the}\quad \text {Depreciation Rate Fraction}\\\begin{array}{llllll} \text { Useful life } &\text {Years' Digits } &\text { Year 1 } & \text {Year 3 } & \text { Year 5} & \\ \text {8 years } &\\\end{array}\end{array}$

Porter's Garage bought a new machine for $16,300. Shipping charges were $200 and the machine is expected to have a useful life of 4 years and a residual value of $1,500. Porter will use the 150% declining-balance method of depreciation. A)What is the beginning book value? B)What is the declining-balance rate? (Round to nearest tenth of a percent)

The price of a desktop computer purchased by Alpha Electronics was $5,034. It cost $189 for delivery and $256 for installation. The salvage value at the end of a 5-year life is $424. Using the sum-of-the-years' digits depreciation, calculate the annual depreciation for year 4.

Growth Industries purchased a generator for $40,500. Delivery costs totaled $1,424 and handling costs were $2,626. The useful life is 6 years and the salvage value is $12,020. Using the straight-line depreciation method, calculate the book value at the end of year 4.

Bent Tree Golf Club purchased a new fleet of golf carts for $92,900. They are expected to have a 10 year useful life and a trade-in value of $10,000. Using the 150% declining-balance method of depreciation, what is the book value at the end of the first year?

Calculate the total cost, total depreciation, and annual depreciation for the following asset using the straight-line method. $\begin{array} { l l l l l l l l } & & & & &&{ \text { Estimated } } \\& \text { Freight } & \text { Set-up } & \text { Total } & \text { Salvage } & \text { Total } & \text { Useful } & \text { Annual } \\\text { Cost } & \text { Charges } & \text { Charges } & \text { Cost } & \text { Value } & \text { Deprec. } & \text { Life } & \text { Deprec. } \\\$ 96,000 & \$ 280 & \$ 3,500 & & \$1,780 & & 7 &\end{array}$

The name given to tax rules for getting back or recovering through depreciation deductions the cost of property used in a trade or business, or to produce income is known as the ____________________ Accelerated Cost Recovery System.

Jay's Sport Shop purchased new shelving and display cases costing $48,000. The installation charges were $4,000 and they expect a residual value of $8,000 after 5 years. Jay will use the double-declining-balance method of depreciation. A)What is the amount of total depreciation? B)What will the book value of the cases be at the end of 5 years?

The price of a High Definition TV purchased by Scranton High School was $2,034. It cost $100 for delivery and $175 for installation. The salvage value at the end of a 5-year life is $250. Using the sum-of-the-years' digits depreciation, calculate the annual depreciation for year 4.

The useful life of an asset is estimated by the length of time it is expected to generate ____________________.

A utility vehicle purchased by Knox Industries should last 110,000 miles. The acquisition cost was $21,400 and the salvage value is $1,926. Using the UOP depreciation method, given the annual usage information, calculate the accumulated depreciation at the end of year 2. (Round all dollar amounts to the nearest cent) $\begin{array} { l l l l } \text { YEAR } & \text { MILES } & \text { YEAR } & \text { MILES } \\\hline 1 & 22,029 & 2 & 22,724 \\3 & 23,420 & 4 & 23,188\end{array}$

Sinclair Energy Resources purchased land containing 10.4 million tons of tar sands for $2,704,000. It cost $992,000 to prepare the property for production and the residual value is $189,000. Compute the annual depletion cost if 2,226,000 tons were produced during the year. (Round depletion cost per unit to the nearest cent)

Rock Industries purchased a piece of equipment for $171,500. The installation and shipping charges were $8,500. They expect the equipment to be used for 8 years and have no residual value. Rock Industries elects to use the sum-of-the-years' digits method of depreciation. What is the amount of accumulated depreciation by the end of the third year?

Loaner Industries purchased a road tractor for $56,800. Prepare a depreciation schedule using the MACRS (Modified Accelerated Cost Recovery System) method, then enter the book value at the end of year 3 as your answer. (Round all amounts to the nearest cent)

Valentine Corp purchased a refrigerated truck for $22,000. Its useful life is estimated as 85,000 miles, with a salvage value of $2,420. Using the UOP depreciation method, given the annual usage information, calculate the book value at the end of year 3. (Round all dollar amounts to the nearest cent) $\begin{array} { l l l l } \text { YEAR } & \text { MILES } & \text { YEAR } & \text { MILES } \\\hline 1 & 17,105 & 2 & 15,585 \\3 & 18,436 & 4 & 20,717\end{array}$

The length of time an asset is expected to generate revenue is called terminal life.