Question

Question 1 (1 point)

Andrews Surgery Center purchases medical equipment for $200,000 on 1/1/20. Andrews initially estimates that the equipment will have a useful life of 5 years and a residual value of $20,000 and calculates depreciation expense using the straight-line method. On 1/1/22 (i.e., after two years), Andrews revises its estimate; the new total useful life is 4 years and the new residual value is $28,000. Andrews will record _____ in Depreciation Expense in 2023.

Question 1 options:

	$40,000
	$50,000
	$43,000
	$36,000

Question 2 (1 point)

If a company uses Double-Declining-Balance to calculate depreciation for tax purposes, they must also use Double-Declining-Balance to calculate depreciation for their financial statements.

Question 2 options:

	True
	False

Question 3 (1 point)

Goodwill is amortized straight-line over a useful life of 10 years.

Question 3 options:

	True
	False

Question 4 (1 point)

Research and development costs are always capitalized when they are incurred.

Question 4 options:

	True
	False

Answer 1

QUESTION 1

COST OF MACHINERY= $200000

LESS: DEPRECIATION= $36000

BOOK VALUE AS ON 31/12/20=$174000

LESS: DEPRECIATION= $36000

BOOK VALUE AS ON 31/12/21= $128000

LESS: DEPRECIATION= $50,000

BOOK VALUE AS ON 31/12/22= $78000

LESS: DEPRECIATION=$50,000

BOOK VALUE AS ON 31/12/23= $28000

WORKING NOTE:-

CALCULATION OF DEPRECIATION

VALUE OF ASSETS LESS RESIDUAL VALUE DIVIDE BY LIFE OF AN ASSET

=($200000-$20000)/5 YEARS

= $36,000 EACH FOR THE FIRST 2 YEARS

AFTERWARDS, LIFE OF AN ASSETS IS CHANGED TO 4 YEARS FROM 5 YEARS AND RESIDUAL VALUE IS CHANGED TO $28000

BOOK VALUE AS ON 31/12/21=$1,28,000

RESIDUAL VALUE= $28,000

REMAINING LIFE = 2YEARS

DEPRECIATION=($128000-$28000)/2YEARS

DEPRECIATION= $50,000

QUESTION 2

FALSE, IT IS OPTIONAL FOR THE COMPANY AND NOT MANDATORY.

QUESTION3

TRUE, GOODWILL IS AMORTISED OVER THE LIFE OF 10 YEARS ON A STRAIGHT LINE BASIS.

FORMULA FOR CALCULATION,

AMOUNT OF GOODWILL / LIFE OF A GOODWILL.

QUESTION 4

FALSE,

Research expenditures are operating expense.Development expenditures that are not proven feasible are operating expenses.Development expenditures that are proven feasible are capital expenditures.

The difference is important because capital expenditures are reported on the balance sheet and are depreciated/amortized over time whereas operating expenses are reported on the income statement on the reporting date it was incurred.