Depreciation and Depletion: Interactive Learning Quizzes for Engineering Economics

Question 1

In the double-declining balance method, the depreciation rate is applied to the:

Accepted Answer

Book value

Answer

Carrying value

Answer

Fair market value

Answer

Replacement cost

Question 2

Depreciation is an accounting technique that:

Accepted Answer

Reduces an asset's book value over time

Answer

Increases an asset's book value over time

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Records an asset's fair market value

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Calculates an asset's potential return on investment

Question 3

Depletion applies to:

Accepted Answer

Natural resources

Answer

Tangible assets

Answer

Intangible assets

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Fixed assets

Question 4

The sum-of-the-years'-digits method of depreciation allocates:

Accepted Answer

A larger portion of the cost to the earlier years of an asset's life

Answer

A constant portion of the cost to each year of an asset's life

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A larger portion of the cost to the later years of an asset's life

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A variable portion of the cost to each year of an asset's life

Question 5

The primary purpose of both depreciation and depletion in accounting is to:

Accepted Answer

Distribute the cost of an asset over its useful life

Answer

Predict an asset's future worth

Answer

Calculate an asset's return on investment

Answer

Manage a business's cash flow

Question 6

What is a primary advantage of employing the units-of-production method for depreciation?

Accepted Answer

It aligns more closely with the asset's actual usage pattern

Answer

It offers a simplified calculation process

Answer

It facilitates higher depreciation expenses in the early years

Answer

It is universally mandated by tax authorities

Question 7

What is the primary purpose of depletion accounting?

Accepted Answer

To distribute the cost of natural resources over the periods in which they are consumed

Answer

To minimize a business's tax liability

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To determine the residual value of an asset

Answer

To calculate the depreciation expense for an asset

Question 8

Which depletion method results in a uniform depletion expense throughout the resource's estimated lifespan?

Accepted Answer

Cost depletion

Answer

Percentage depletion

Answer

Units-of-production depletion

Answer

Depletion based on net realizable value

Question 9

What is the key distinction between depreciation and depletion?

Accepted Answer

Depreciation is spread over the asset's useful life, whereas depletion is distributed over the resource's estimated lifespan

Answer

Depreciation applies to physical assets, while depletion applies to non-physical assets

Answer

Depreciation lowers the carrying value of an asset, but depletion does not

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Depreciation is mandatory, but depletion is optional

Question 10

What is the impact of assigning a higher salvage value for depreciation purposes?

Accepted Answer

Reduced depreciation expense

Answer

Increased depreciation expense

Answer

No impact on depreciation expense

Answer

Cannot be determined without additional information

Question 11

Which of the following is not an advantage of using the straight-line depreciation method?

Accepted Answer

Accelerates depreciation expenses in the early years of the asset's life

Answer

Simplicity and ease of calculation

Answer

Matches income generated by the asset over its useful life

Answer

Provides a consistent and predictable depreciation expense

Question 12

Which of the following factors does NOT affect the depletion rate of a natural resource?

Accepted Answer

Market value of the resource

Answer

Estimated quantity of the resource

Answer

Expected life of the resource

Answer

Depletion allowance

Question 13

The salvage value of an asset is:

Accepted Answer

The estimated value of the asset at the end of its useful life

Answer

The initial cost of the asset

Answer

The depreciation expense for the asset

Answer

The book value of the asset

Question 14

The book value of an asset is:

Accepted Answer

The original cost of the asset minus the accumulated depreciation

Answer

The current market value of the asset

Answer

The salvage value of the asset

Answer

The depreciation expense for the asset

Question 15

Which of the following factors should NOT be considered when selecting an appropriate depreciation method?

Accepted Answer

Personal preferences of the accountant

Answer

Estimated asset lifespan

Answer

Applicable tax laws

Answer

Projected cash flow patterns

Question 16

The Straight-Line depreciation method results in:

Accepted Answer

Equal depreciation expenses in each year of the asset's life

Answer

Larger depreciation expenses in the earlier years of the asset's life

Answer

Smaller depreciation expenses in the later years of the asset's life

Answer

Depreciation expenses that fluctuate based on the asset's usage

Question 17

Depletion is a depreciation method specifically applied to:

Accepted Answer

Natural resources such as oil and gas reserves

Answer

Physical assets like buildings and machinery

Answer

Intangible assets like patents and trademarks

Answer

Depreciation of equipment and furniture

Question 18

The cost depletion method involves:

Accepted Answer

Distributing the asset's cost evenly over its estimated lifespan

Answer

Calculating annual depreciation based on a fixed percentage of the asset's cost

Answer

Estimating the asset's salvage value and incorporating it into the depreciation calculations

Answer

Using more complex calculations compared to the percentage depletion method

Question 19

A potential disadvantage of the percentage depletion method is:

Accepted Answer

Inapplicability to all types of natural resources

Answer

Accelerated depreciation expenses in the early years of the asset's life

Answer

Requirement to estimate the asset's salvage value

Answer

Greater complexity in calculations compared to the cost depletion method

Question 20

When calculating depreciation expense using a specific declining balance rate, the book value of the asset:

Accepted Answer

Decreases at a decreasing rate each year

Answer

Decreases by a fixed amount each year

Answer

Increases by a fixed amount each year

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Increases at an increasing rate each year

Question 21

Depreciation expenses are classified as:

Accepted Answer

Operating expenses

Answer

Non-operating expenses

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Capital expenditures

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Not included in the income statement

Question 22

The primary purpose of depreciation is to:

Accepted Answer

Equitably allocate the cost of an asset over its useful life

Answer

Maximize the company's profitability

Answer

Reduce the amount of taxes owed

Answer

Accumulate funds for future asset replacement