Many Companies That Use the Declining-Balance Method of Depreciation Switch

question 38

Multiple Choice

Many companies that use the declining-balance method of depreciation switch to the straight-line method at some point in the life of a depreciable asset. When does that switch normally occur?

• A) never, since one method must be applied consistently throughout the life of an asset
• B) in the last quarter of the life of the asset
• C) when the depreciation cost under the accelerated method exceeds the depreciation cost under the straight-line method
• D) midpoint in the life of the asset

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Definitions:

Historical Cost Principle

An accounting principle that states that companies should record assets at their cost.

Brokerage Fees

Charges levied by a broker for executing transactions or providing specialized services.

Accrued Interest

Accrued interest is interest that has been incurred but not yet paid, often relating to bonds or loans over the period between interest payment dates.

Equity Method

An accounting method in which the investment in common stock is initially recorded at cost, and the investment account is then adjusted annually to show the investor’s equity in the investee.