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The calculation of amortization using the declining-balance method

The calculation of amortization using the declining-balance method



	1.	Vickers Company uses the units-of-activity method in calculating amortization. A new plant asset is purchased for $18,000 that will produce an estimated 100,000 units over its useful life. Estimated residual value at the end of its useful life is $2,000. What is the amortization cost per unit?
		a.	$1.60.
		b.	$1.80.
		c.	$ .16.
		d.	$ .18.

	2.	Units of activity is an appropriate amortization method to use when
		a.	it is impossible to determine the productivity of the asset.
		b.	the asset's use will be constant over its useful life.
		c.	the productivity of the asset varies significantly from one period to another.
		d.	the company is a manufacturing company.

	3.	The calculation of amortization using the declining-balance method,
		a.	ignores residual value in determining the amount to which a constant rate is applied.
		b.	multiplies a constant percentage times the previous year's amortization expense.
		c.	yields an increasing amortization expense each period.
		d.	multiplies a declining percentage times a constant book value.

Use the following information for questions 4-5.
Fayad Company purchased a new van for floral deliveries on January 1, 2001. The van cost $20,000 with an estimated life of 5 years and $5,000 residual value at the end of its useful life.  The doubledeclining-balance method of amortization will be used.

	4.	What is the amortization expense for 2001?
		a.	$4,000.
		b.	$3,000.
		c.	$6,000.
		d.	$8,000.

	5.	What is the balance of the Accumulated Amortization account at the end of 2002?
		a.	$3,200.
		b.	$9,600.
		c.	$12,800.
		d.	$4,800.





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20 Apr 2016

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    The calculation of amortization using the declining-balance method

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