A Fixed Asset with a Five-Year Estimated Useful Life and No

question 23

Multiple Choice

A fixed asset with a five-year estimated useful life and no scrap value is sold at the end of the second year of its useful life. How would using the straight-line method of depreciation instead of the double-declining balance method of depreciation affect a gain or loss on the sale of the plant asset?

• A) A gain would be greater or a loss would be less using straight-line depreciation.
• B) A gain would be less or a loss would be greater using straight-line depreciation.
• C) A gain would be less or a loss would be less using straight-line depreciation.
• D) Neither the gain or loss would be different using straight-line depreciation instead of double-declining-balance method.

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Definitions:

Annuity Cost

The initial investment or premium required to purchase an annuity, which in return provides periodic payments for a specified period or for life.

Pretax Return

The financial return on an investment before any taxes are deducted.

Taxable Investor

An individual or entity that is subject to taxes on investment income and capital gains, affecting investment choices and strategies to minimize tax liabilities.

After-tax Return

The profit realized from an investment after all applicable taxes have been subtracted, representing the actual benefit to the investor.