# FSA - Good One

On January 1, 2007, Sneed Corporation purchased machinery costing \$8 million with a salvage value of \$1 million. For the year ended 2007, Sneed recognized depreciation expense of \$3.2 million from the machinery using the double-declining-balance method. Should the depreciation expense be reported as an operating component in the income statement, and what is the estimated useful life of the machinery? Operating expense Useful life A) No 5 years B) Yes 4 years C) Yes 5 years D) No 4 years

C

B) i think

C

Hank, DDB ignores salvage. It must be 5 years in estimated life: 8*2/3.2=5. And yes, depreciation reported, so I think it it C.

A? Not sure about the operating. I would say no becasue it’s a non cash transaction? 5 Yrs = Plugged into calc.

Depreciation expense is reported as an operating component in the income statement. Given the first year depreciation expense of \$3.2 million, and the original cost of \$8 million, the declining balance percentage is 40% (\$3.2 million depreciation expense / \$8 million cost). The double declining balance percentage is equal to 2 / useful life = 40%. Thus, the useful life is 5 years (2 / 0.40).

This is indeed a non-cash transaction, however is part of COGS beingthatguy Wrote: ------------------------------------------------------- > A? > > Not sure about the operating. I would say no > becasue it’s a non cash transaction? > > 5 Yrs = Plugged into calc.

D no and 5 years.

non cash charges has to do with cash flow statment

got confused, thinking about cash flows. )(*&(*&(^(*&^%&%^(*&%)#(#(*\$*!!!

I wouldn’t categorize this as a “good” one. I’d call this a “if you’re still wasting time on simple questions like these hang it up” one.

oops, Dep is reported in income statement. so yeah C.

map1 Wrote: ------------------------------------------------------- > Hank, DDB ignores salvage. It must be 5 years in > estimated life: 8*2/3.2=5. And yes, depreciation > reported, so I think it it C. Thanks map1, I was sure about it being reported in operating expenses but forgot the salvage part. Note to self, read the methods again.

Super I Wrote: ------------------------------------------------------- > I wouldn’t categorize this as a “good” one. I’d > call this a “if you’re still wasting time on > simple questions like these hang it up” one. lol. According to you, what are difficult questions.

KJH Wrote: ------------------------------------------------------- > Depreciation expense is reported as an operating > component in the income statement. Given the first > year depreciation expense of \$3.2 million, and the > original cost of \$8 million, the declining balance > percentage is 40% (\$3.2 million depreciation > expense / \$8 million cost). The double declining > balance percentage is equal to 2 / useful life = > 40%. Thus, the useful life is 5 years (2 / 0.40). KJH, shouldn’t we need to deduct the salvage value in the depreciation base ???