Chapters 4 5 6

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4.1 Understand tax depreciation procedures and the effect of depreciation on the firm's cash flows.

1) Depreciation deductions, like any other business expenses, reduce the income that a firm reports on its income statement. Answer: TRUE
Diff: 1
Topic: Depreciation
Learning Obj.: LG 1
Learning Outcome: F-02
Question Status: Previous Edition
AACSB Tag: Analytic Skills

2) Non-cash charges are expenses that involve an actual outlay of cash during the period but are not deducted on the income statement. Answer: FALSE
Diff: 1
Topic: Depreciation
Learning Obj.: LG 1
Learning Outcome: F-02
Question Status: Previous Edition
AACSB Tag: Analytic Skills

3) Under the basic MACRS procedures, the depreciable value of an asset is its full cost, including outlays for installation. Answer: TRUE
Diff: 1
Topic: Depreciation
Learning Obj.: LG 1
Learning Outcome: F-02
Question Status: Previous Edition
AACSB Tag: Analytic Skills

4) Business firms are permitted to systematically charge a portion of the market value of fixed assets as depreciation against annual revenues. Answer: FALSE
Diff: 1
Topic: Depreciation
Learning Obj.: LG 1
Learning Outcome: F-02
Question Status: Previous Edition
AACSB Tag: Analytic Skills
5) Given a financial manager's preference for faster receipt of cash flows, a longer depreciable life is preferred to a shorter one. Answer: FALSE
Diff: 1
Topic: Depreciation
Learning Obj.: LG 1
Learning Outcome: F-02
Question Status: Previous Edition
AACSB Tag: Analytic Skills

6) For tax purposes, using MACRS recovery periods, assets in the first four property classes are depreciated by the double-declining balance method using the half-year convention and switching to straight line when advantageous. Answer: TRUE

Diff: 1
Topic: Depreciation Methods
Learning Obj.: LG 1
Learning Outcome: F-02
Question Status: Previous Edition
AACSB Tag: Analytic Skills

7) The MACRS depreciation method requires use of the half-year convention. Assets are assumed to be acquired in the middle of the year and only one-half of the first year's depreciation is recovered in the first year. Answer: TRUE

Diff: 1
Topic: Depreciation Methods
Learning Obj.: LG 1
Learning Outcome: F-02
Question Status: Previous Edition
AACSB Tag: Analytic Skills

8) Allocation of the historic costs of fixed assets against the annual revenue they generate is called ________. A) arbitraging
B) securitization
C) depreciation
D) amortization
Answer: C
Diff: 1
Topic: Depreciation
Learning Obj.: LG 1
Learning Outcome: F-02
Question Status: Revised
AACSB Tag: Analytic Skills
9) The Modified Accelerated Cost Recovery System (MACRS) is a depreciation method used for ________ purposes. A) tax
B) financial reporting
C) budget
D) cost accounting
Answer: A
Diff: 1
Topic: Depreciation
Learning Obj.: LG 1
Learning Outcome: F-02
Question Status: Revised
AACSB Tag: Analytic Skills

10) A corporation ________.
A) must use the straight-line depreciation method for tax purposes and double declining depreciation method financial reporting purposes B) can use straight-line depreciation method for tax purposes and MACRS depreciation method financial reporting purposes C) can use different depreciation methods for tax and financial reporting purposes D) must use different depreciation method for tax purposes, but strictly mandated depreciation methods for financial reporting purposes Answer: C

Diff: 1
Topic: Depreciation
Learning Obj.: LG 1
Learning Outcome: F-02
Question Status: Revised
AACSB Tag: Analytic Skills

11) The depreciable value of an asset, under MACRS, is the ________. A) current cost
B) current cost minus salvage value
C) the original cost plus installation
D) the original cost plus installation costs, minus salvage value Answer: C
Diff: 1
Topic: Depreciation
Learning Obj.: LG 1
Learning Outcome: F-02
Question Status:...
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