Question

In: Finance

1. Norwood, Inc. purchased a crane at a cost of $80,000. The crane has an estimated...

1. Norwood, Inc. purchased a crane at a cost of $80,000. The crane has an estimated residual value of $5,000 and an estimated life of eight years, or 12,500 hours of operation. The crane was purchased on January 1, 2017, and was used 2,700 hours in 2017 and 2,600 hours in 2018.

Refer to the information for Norwood, Inc.

If Norwood uses the straight-line depreciation method, what is the book value at December 31, 2019?

a.$51,875

b.$67,500

c.$46,875

d.$62,500

2.

Norwood, Inc. purchased a crane at a cost of $80,000. The crane has an estimated residual value of $5,000 and an estimated life of eight years, or 12,500 hours of operation. The crane was purchased on January 1, 2017, and was used 2,700 hours in 2017 and 2,600 hours in 2018.

Refer to the information for Norwood, Inc.

If Norwood uses the double-declining-balance depreciation method, what amount is the depreciation expense for 2018?

a.$20,000

b.$18,750

c.$14,063

d.$15,000

3. MC.08-076

Land is not depreciated because it

a.has an unlimited life.

b.appreciates in value.

c.has a useful life that is limited to the period of time a company is in business.

d.does not have an established depreciable life.

4. Depreciation is

a.the cash allocated each period to maintain a plant asset.

b.an accumulation of funds to replace the related plant asset.

c.the difference between the original cost and salvage value of an asset.

d.an effort to achieve proper matching of the cost of operating assets.

5. A gain is recognized on the disposal of plant assets when the sale price is

a.less than the book value.

b.greater than the book value.

c.less than both the book value and the residual value.

d.greater than the book value and less than the residual value.

Expert Solution

1
Straight line depreciation	(Cost - Salvage value)/Estimated useful life
Straight line depreciation	(80000-5000)/8
Straight line depreciation	9375

Book value at end of 31st Dec 2019	Cost - Accumulated depreciation
Book value at end of 31st Dec 2019	80000-(9375*3)
Book value at end of 31st Dec 2019	80000-28125
Book value at end of 31st Dec 2019	$51,875

2
Double declining depreciation rate	1/8*2
Double declining depreciation rate	25.00%

Cost	$80,000
Depreciation for 2017	$20,000
Book value at end of 2017	$60,000
Depreciation for 2018	$15,000

3
Assets which have definite useful life are depreciated as depreciation expense can be calculated
Land can be used indefinitely and does not wear or tear but always increases in value
Thus, land is not depreciated because it has unlimited useful life

4
Depreciation expense is recognized so that the costs of operating assets can be matched with revenue
It represents use of assets to generate revenue for the year
Thus, option (d) is correct

5
Gain on sale of asset is recognized when sale proceeds from assets are higher than its book value
If sale proceeds is lower than book value then loss on sale of assets is recognized
Thus, when sale price is greater than book value gain is recognized

jeff jeffy answered 1 year ago

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