Q. If an asset has a cost of $10,000, a salvage value of $1,000, and a useful life of 5 years, what is the annual depreciation expense using the Straight-Line Method?
A.
$1,800
B.
$2,000
C.
$1,500
D.
$1,200
Solution
The annual depreciation expense using the Straight-Line Method is calculated as (Cost - Salvage Value) / Useful Life = ($10,000 - $1,000) / 5 = $1,800.
Q. In the context of inventory valuation, which method is least likely to affect the reported net income during periods of rising prices?
A.
FIFO
B.
LIFO
C.
Weighted Average
D.
Specific Identification
Solution
FIFO (First-In, First-Out) is least likely to affect reported net income during periods of rising prices, as it results in lower cost of goods sold and higher net income.
Q. In the Declining Balance Method, what is the primary factor that determines the amount of depreciation expense?
A.
Useful Life
B.
Salvage Value
C.
Depreciation Rate
D.
Asset Cost
Solution
In the Declining Balance Method, the depreciation expense is determined by applying a fixed depreciation rate to the book value of the asset at the beginning of each period.
Q. What is the effect of changing the estimated useful life of an asset on its depreciation expense?
A.
Increases Depreciation Expense
B.
Decreases Depreciation Expense
C.
No Effect
D.
Depends on the Method Used
Solution
Changing the estimated useful life of an asset will affect the depreciation expense calculation, potentially increasing or decreasing it depending on the new estimate.
Q. What is the main advantage of using the Units of Production Method for depreciation?
A.
Simplicity
B.
Matching Expenses with Revenue
C.
Tax Benefits
D.
Consistency
Solution
The Units of Production Method matches the expense of depreciation with the actual usage of the asset, providing a more accurate reflection of the asset's contribution to revenue.
Correct Answer:
B
— Matching Expenses with Revenue
