7.3-11 A revision of an estimate which will extend the asset’s useful life is called a change in accounting: A) theory. B) policy. C) procedure. D) estimate. 7.3-12 When an asset is fully depreciated: A) the total depreciation is equal to the accumulated depreciation and the asset has reached the end of its actual useful life. B) the book value is equal to the salvage value and the asset has reached the end of its estimated useful life. C) the depreciable cost is equal to the salvage value and the asset is of no further use to the company. D) the book value is zero and the asset has no market value. 7.3-13 A special depreciation method used only for income-tax purposes is: A) straight-line. B) units-of-production. C) modified accelerated cost recovery system. D) accelerated cost recovery system. 41 7.3-14 Under the modified accelerated cost recovery system all of the following are TRUE except that: A) assets are grouped into classes. B) most real estate is depreciated using the straight-line method. C) for a given class the depreciation is computed using a declining-balance method. D) MACRS can only be used for financial reporting purposes. 7.3-15 Which of the following statements regarding depreciation for a partial year is NOT true? A) If an asset is not purchased at the beginning of the year depreciation must be computed only for the portion of the year the company held the asset. B) Many businesses record no monthly depreciation on assets purchased after the 15th of the month. C) An asset purchased on June 5 will be depreciated for seven months for the first year. D) An asset purchased on June 5 will be depreciated for six months for the first year. 7.3-16 Carl’s Cigar Corporation’s net income before depreciation and taxes is $310 000. Using straight-line depreciation the current year’s depreciation expense would be $24 000. Using double-declining-balance depreciation the current year’s depreciation expense would be $36 000. Assuming a tax rate of 35% what is Carl’s Cigar Corporation’s net income if the double-declining-balance depreciation method is used? A) $171 600 B) $166 400 C) $185 900 D) $178 100 42 7.3-17 Income before depreciation and taxes amounts to $167 200. Using straight-line depreciation the current year’s depreciation expense will be $31 200. Using double-declining-balance depreciation the current year’s depreciation expense will be $41 200. Assuming a tax rate of 30% what is the net cash saved in income taxes by using double-declining-balance depreciation over straight-line depreciation? A) $3 000 B) $4 000 C) $7 000 D) $11 100 7.3-18 Art Modell Company reported $61 000 in depreciation expense for the current year using the double-declining-balance method. The company estimates that it saved net cash of $12 000 in income taxes by using the double-declining-balance instead of the straight-line method. The company has a 30% tax rate. What would depreciation expense have been using the straight-line method? A) $43 857 B) $40 000 C) $21 000 D) $7 200 43 7.3-19 Deland Company purchased equipment on March 1 2011 for $130 000. The residual value is $40 000 and the estimated life is 10 years or 60 000 hours. Compute depreciation expense for the year ending December 31 2011 if the company uses the straight-line method of depreciation. A) $7 500 B) $9 000 C) $14 444 D) $21 666 7.3-20 Deland Company purchased equipment on March 1 2011 for $130 000. The residual value is $40 000 and the estimated life is 10 years or 60 000 hours. Compute depreciation expense for the year ending December 31 2011 if the company uses the units-of-production method of depreciation and uses the equipment for 9 000 hours. A) $9 000 B) $10 500 C) $13 500 D) $29 500
