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Flashcards: Depreciation and Amortization

A company buys 200 doors for $75 each at the beginning of Year 1. On the same day, the company buys an other 300 doors for $85 each. None of the doors are expected to have any salvage value. The cheaper doors have a useful life of 7 years and the more expensive doors have a useful life of 9 years. In Year 2, the company sells one of the cheaper doors for $90 and one of the more expensive doors for $120. All doors were put into a single group for depreciation purposes. How much gain will the company recognize on the sale of the doors in Year 2?

$70.44

$44.44

$25.71

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Flashcards: Depreciation and Amortization

Your answer:

$70.44

Your answer:

$44.44

Your answer:

$25.71

Correct answer:

Explanation:

The doors will use the group/composite method of depreciation. Therefore, no gain or loss will be recognized until all items in the group have been sold.

Flashcards: Depreciation and Amortization

The Great Dane Bus company buys a new bus on February 14, Year 1. The bus costs $100,000 and has a salvage value of $8,000. The company expects the bus to be used for 200,000 miles and will depreciate it using the units of production method. The bus is driven 35,000 miles during Year 1 and another 40,000 miles during Year 2. What is the book value of the bus at the end of Year 2?

$75,900

$54,000

$65,500

$73,600

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Flashcards: Depreciation and Amortization

Your answer:

$75,900

Your answer:

$54,000

Your answer:

$73,600

Correct answer:

$65,500

Explanation:

Since the bus is being depreciated using the units-of-production method, $.46 in depreciation will be recorded for every mile driven ($100K cost - $8K salvage value divided by 200K estimated miles). At the end of Year 2, 75K miles have been driven, for a total of $34,500 in depreciation (75K miles x $.46 per mile). Therefore, the book value of the bus is $65,500 ($100K - $34,500).

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All CPA Financial Accounting and Reporting (FAR) Resources

Flashcards: Depreciation and Amortization

Flashcards: Depreciation and Amortization

Flashcards: Depreciation and Amortization

Flashcards: Depreciation and Amortization

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