- CFA Exams
- CFA Exam: Level I 2021
- Study Session 8. Financial Reporting and Analysis (3)
- Reading 26. Long-lived Assets
- Subject 3. Depreciation Methods
CFA Practice Question
Bay Tree Company purchased a machine for $ 264,000 on 1/1/2012 and depreciated it using the straight-line method with an estimated useful life of eight years and no expected salvage value. Bay Tree determined in January 2015 that the machinery would likely have only three remaining years of life and an expected salvage value of $24,000. The balance in accumulated depreciation as of 12/31/2015 should be ______.
B. $154,000
C. $160,000
A. $146,000
B. $154,000
C. $160,000
Correct Answer: A
Depreciation Expense (2015) ($165,000 carrying amount** -24,000)/3 yrs = $47,000
Accumulated Depreciation= $146,000 = ($33,000 x 3 years= 99,000) + $47,000
Depreciation Expense per year (2012 - 2014)= $264,000/8= $33,000
Depreciation Expense (2015) ($165,000 carrying amount** -24,000)/3 yrs = $47,000
Accumulated Depreciation= $146,000 = ($33,000 x 3 years= 99,000) + $47,000
** carrying amount = original cost - accumulated depreciation = $264,000 - (33,000 x 3)
User Contributed Comments 3
| User | Comment |
|---|---|
| jonan203 | HP12C 264,000 <enter><enter> 8 <divide> 3 <times><sto> 1 <minus> 24,000 <minus> 3 <divide><rcl> 1 <plus> total calculation time = 10 seconds |
| Shaan23 | Just because the solution seems long written out doesnt mean it takes long. I punched in the numbers using logic and got to the answer in 20 seconds. I do NOT recommend the calculator for this section. Understand the logic to get all answers right not just the numerical based ones. |
| farhan92 | using straight line depreciation/year =33 -for 3 years (99) asset value in 2015 = 264 - 99 =165 165-24/3 =47 47+99 = bobs your uncle |