51. If the expiry of the asset is a function of its usage, what is the most appropriate depreciation method for it?
A. Straight-line
B. Declining balance
C. Units-of-production
D. Market value
52. Which of the following would allow a company to report higher net income in earlier periods?
A. A lower residual value
B. A shorter useful life
C. Use of straight-line depreciation
D. Use of declining balance depreciation
53. Which of the following would most likely allow a company to report higher net income in earlier periods?
A. A higher residual value
B. A shorter useful life
C. Use of units-of - production
D. Use of declining balance depreciation
54. Which of the following statements about depreciation is correct?
A. The depreciation method selected has no impact on cash flows.
B. The depreciation method selected has no impact on net income.
C. Consistency requires that the same method of depreciation should be used for all classes of assets.
D. Straight-line depreciation produces higher depreciation expense in the early years of an asset's useful life.
55. Kozy Kitchens Inc. has a new showroom that cost $400,000. It will be amortized using the declining balance method at a rate of 5%. The estimated residual value of the showroom is $50,000, and it has an expected useful life of 20 years. Assuming the first year's depreciation expense was recorded properly, what would be the amount of depreciation expense for the second year?
A. $10,000
B. $16,625
C. $19,000
D. $20,000
.05* $400,000 = $20,000 in year 1, year 2 = .05 ($400,000 - $20,000) = $19,000
56. Kozy Kitchens Inc. has a new showroom that cost $400,000. It will be amortized using the declining balance method at a rate of 5%. The estimated residual value of the building is $50,000, and it has an expected useful life of 20 years. Assuming the first year's depreciation expense was recorded properly, what would be the amount of accumulated depreciation at the end of the second year (after adjusting entries)?
A. $19,000
B. $34,125
C. $39,000
D. $40,000
Expense = .05 * $400,000 = $20,000 in year 1, year 2 = .05 ($400,000 - $20,000) = $19,000, accumulated depreciation = $19,000 + $20,000 = $39,000
57. Kozy Kitchens Inc. has a new showroom that cost $400,000. It will be amortized using the declining balance method at a rate of 5%. The estimated residual value of the building is $50,000, and it has an expected useful life of 20 years. Assuming the first year's depreciation expense was recorded properly, what would be the net book value of the showroom at the end of the second year (after adjusting entries)?
A. $360,000
B. $361,000
C. $365,875
D. $381,000
Expense = .05* $400,000 = $20,000 in year 1, year 2 = .05 ($400,000 - $20,000) = $19,000, accumulated depreciation = $19,000 + $20,000 = $39,000, NBV = $400,000 - $39,000 = $361,000
58. Manotik in Motion has recently expanded their operation and had built a large manufacturing facility and head office complex on the outskirts of Ottawa. To finance the expansion, they have taken out a loan with the Canadian Bank of Royal. The loan has a covenant stating that they must not exceed a certain debt-to-assets ratio. Management is now selecting the depreciation policies they will use on all the assets bought as part of the expansion. Which of the following will best help them meet their debt covenant?
A. Straight-line depreciation
B. Declining balance depreciation
C. Units-of-production depreciation
D. Expensing all interest costs during the construction period
Straight-line depreciation will result in the highest asset values, all else being equal.
59. In addition to measuring capital assets at historical cost, IFRS permits the use of which method, providing certain conditions are met?
A. Replacement cost
B. Net realizable value
C. Estimated cost
D. Fair value
60. The fair value model of accounting for Property, Plant, and Equipment assets:
A. should be applied to investment property only.
B. recognizes gains in the asset's fair value in other comprehensive income.
C. once chosen for one investment property does not have to be applied to all investment property.
D. recognizes gains and losses in the asset's fair value in other comprehensive income.