CAPITAL OR EXPENSE
A company purchases equipment for $20,000. Capital expenditure or immediate expense?
Capital expenditure
What is the formula for straight-line depreciation?
(Cost − Residual value) ÷ Useful life
What determines depreciation expense under the units-of-production method?
Actual usage or production
Is double-declining balance an accelerated or straight-line method?
Accelerated
What is book value?
Asset cost minus accumulated depreciation
A company pays $200 for an oil change on its delivery van.
Immediate expense
Equipment costs $30,000, has a $5,000 residual value and a five-year useful life. Calculate annual depreciation.
$5,000
What is the first step when calculating units-of-production depreciation?
Calculate depreciation per unit
What do you multiply the straight-line depreciation rate by to get the DDB rate?
2
A company purchases land and a building together. Should the entire purchase price be allocated to the building?
No, allocate the cost between land and building based on relative appraised values.
A company spends $3,000 to overhaul machinery, extending its useful life by seven years.
Capital expenditure
Equipment costs $65,000, has a $5,000 residual value and a five-year life. What is Year 1 depreciation?
$12,000
Equipment costs $10,000, has a $1,000 residual value and produces 3,000 units over a 9,000-unit useful life. Calculate depreciation expense.
$3,000
An asset has a five-year useful life. What is its DDB depreciation rate?
40%
Equipment costs $80,000 and accumulated depreciation is $55,000. What is its book value?
$25,000
A company spends $5,000 repairing broken light fixtures.
Immediate expense
Using the equipment in the previous question, what is its book value at the end of Year 3?
$29,000
What finanacial statement is Depreciation expense recorded?
Income Statement
Equipment costs $50,000, has a five-year useful life and uses DDB. Calculate Year 1 depreciation.
$20,000
Equipment with a $25,000 book value is sold for $30,000. Calculate the gain or loss.
$5,000 gain
Explain the difference between capitalizing an expenditure and expensing it immediately
Capitalized costs are recorded as assets and allocated to expense over time through depreciation. Ordinary repairs are expensed in the current period.
Equipment costs $50,000, has a residual value of $5,000 and a useful life of nine years. What is accumulated depreciation after four years?
$20,000
Equipment costs $6,500,000, has a $100,000 residual value and a total estimated production of 10 million units. What is depreciation per unit?
$0.64
Equipment costs $50,000, has a five-year useful life and uses DDB. Calculate Year 2 depreciation.
$12,000
Net income is $80,000 and average total assets are $140,000. Calculate return on assets.
57.14%