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Chapter 2: 4DQ (page 46)

What is the difference between accumulated depreciation and depreciation expense? How are they related?

Short Answer

Expert verified

Accumulated depreciation is defined as thetotal depreciation charged on the asset of the company since the asset was purchased and used. The depreciation expense is used to compute the accumulated depreciation.

Step by step solution

01

Difference between the accumulated depreciation and the depreciation expense

Depreciation expense is referred to the depreciation of one period, and accumulated depreciation is referred to the aggregate depreciation of all the periods during which the asset is held by the company.

02

Relation between the accumulated depreciation and the depreciation

Depreciation is charged to record the usage cost of the asset with the benefit gained from its use.And the accumulated depreciation is the total of all the recorded depreciation charged on the asset on a specific date.

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Most popular questions from this chapter

A firm has net income before interest and taxes of \(193,000 and interest expense of \)28,100.

b. If the firm’s lease payments are $48,500, what is the fixed charge coverage?

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Quantum Technology had \(669,000 of retained earnings on December 31, 20X2. The company paid common dividends of \)35,500 in 20X2 and had retained earnings of $576,000 on December 31, 20X1. How much did Quantum Technology earn during 20X2, and what would earnings per share be if 47,400 shares of common stock were outstanding?

Lemon Auto Wholesalers had sales of \(1,000,000 last year, and cost of goods sold represented 78 percent of sales. Selling and administrative expenses were 12 percent of sales. Depreciation expense was \)11,000 and interest expense for the year was \(8,000. The firm’s tax rate is 30 percent.

a. Compute earnings after taxes.

b. Assume the firm hires Ms. Carr, an efficiency expert, as a consultant. She suggests that by increasing selling and administrative expenses to 14 percent of sales, sales can be increased to \)1,050,900. The extra sales effort will also reduce cost of goods sold to 74 percent of sales. (There will be a larger markup in prices as a result of more aggressive selling.) Depreciation expense will remain at \(11,000. However, more automobiles will have to be carried in inventory to satisfy customers, and interest expense will go up to \)15,800. The firm’s tax rate will remain at 30 percent. Compute revised earnings after taxes based on Ms. Carr’s suggestions for Lemon Auto Wholesalers. Will her ideas increase or decrease profitability?

Baker Oats had an asset turnover of 1.6 times per year.

b. The following year, on the same level of assets, Baker’s assets turnoverdeclined to 1.4 times and its profit margin was 8 percent. How did the returnon total assets change from that of the previous year?
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