Question

-ing Depreciation 25. A company pays $30,000 for two machines. Machine A is appraised at a fair market value of $24.000 and Machine B at a fair market value of $8,000. The cost of Machine B is recorded for book purposes at... a. $7,500 b. $8,000 c. $24,000 d. $30,000 26. On July 1. 2018, a calendar-year corporation purchases a new passenger auto for $25,000. The maximum tax depreciation allowed on the auto in 2018 is... a. $25,000 b. $12,500 c. $18,000 d. $5,000 27. For the asset in Question 26, maximum depreciation in Year 6 will be... a. $0 b. $403 c. $1,440 d. $5,760 Use the following information to answer Questions 28-30: On January 2, 2018, a company purchases a machine for $11,000 and estimates that it will have a 10-year life and a residual value of $1,000. It is depreciating the machine for book purposes under the straight-line method. 28. What is the journal entry to record Year 1 depreciation for a nonmanufacturing company? 1,000 a. Depreciation Expense Accumulated Depreciation-Machine 1,000 b. Inventory-Work-In-Process OH Accumulated Depreciation Machine 1,000 1,000 c. Depreciation Expense Accumulated Depreciation-Machine 4,000 4,000 d. Inventory-Work-In-Process OH Depreciation Expense 1,000 1,000

Answer 1

As per HOMEWORKLIB POLICY and guideline, the first-4 MCQs are answered below:

25.

Answer: a

This is calculated as below:

Total payment = $30,000

Total fair value = 24,000 + 8,000 = $32,000

Difference = Total fair value – Total payment = 32,000 – 30,000 = $2,000

Share of difference in B = Difference × (Fair value of B / Total fair value)

                                        = 2,000 × (8,000 / 32,000)

                                        = 2,000 × 0.25

                                        = 500

Recorded value = Fair value of B – Share of difference in B

                           = 8,000 – 500

                           = $7,500

26.

Answer: c

The maximum limit of depreciation deduction is $10,000 for the first year of purchasing passenger auto, which is 2018 here, and an additional amount is $8,000 in the first year.

Therefore, total tax depreciation is (10,000 + 8,000 =) $18,000.

27.

Answer: a

There will be no depreciation in 6^th year, because $25,000 is recovered in first 2 tax-years -- $18,000 in 1^st year and the rest (25,000 – 18,000 =) $7,000 in the 2^nd year.

28.

Answer: a

Depreciation expense should debit, since the machine is used during the year; therefore, it is chargeable.

Accumulated depreciation should credit, since this is the contra of asset (Machine) book value.

Amount = (Cost – Residual value) / Number of life-years

            = (11,000 – 1,000) / 10

            = 10,000 / 10

            = $1,000