Accounting concepts chapter 11
Which of the following is true regarding a company's choice of depreciation method?
An accelerated method lowers taxes in the early years of an asset's life
Time-Based Depreciation Methods
Straight-Line Method
The formula for calculating declining balance depreciation is the depreciation rate per year times
The book value at the beginning of the year
Straight-line depreciation is calculated as the depreciable base divided by
The estimated useful life of the asset
The cost of a natural resource less its anticipated residual value is called the
depletion base
The total amount of cost to be allocated over an asset's service life is called its allocation____
depreciation expense
The formula to calculate the depletion rate of a natural resource is the depletion base divided by the
estimated extractable amount of natural resource
Declining balance depreciation methods multiply ______ by an annual rate that is a multiple of the straight-line rate
cost less accumulated depreciation
The journal entry to record the allocation of the cost of a natural resource will include a
credit to the natural resource
On December 30, 20X1, Rocket Corp disposed of equipment with a historical cost of $100,000 and accumulated depreciation of $70,000. The equipment was sold for $80,000 cash. The journal entry to record the sale will include which of the following entries
debit accumulated depreciation $70,000 debit cash $80,000 credit gain on sale of equipment $50,000 credit to equipment $100,000
The journal entry to record depreciation expense includes
debit to depreciation expense credit to accumulated depreciation
If equipment used in excavation of natural resources is not movable from site to site, it should be
depreciated over the shorter of its useful life or the life of the natural resource
The portion of a tangible asset's cost that is recognized as an expense in the current year is called
depreciation expense
Although activity-based depreciation methods are theoretically superior to the time-based methods, activity-based methods are
difficult to apply in practice too costly to use
The depreciation method that allocates an equal amount of the depreciable base to each year of the asset's service life is the
straight-line method
For assets using the group or composite method of depreciation, the assets will be depreciated over
the average service life of assets in the group
The formula for sum-of-the-years' digit method is the depreciable base times the depreciation rate, which is calculated as
the number of years remaining in the assets life divided by the sum of the years digits
When group depreciation is used, and an asset is sold, which of the following occurs?
No gain or loss is recorded The assets cost is removed from the books
Which of the following terms is equivalent to an asset's useful life to a particular company?
service life
The amount of use that a company expects to obtain from an asset before disposing of it is referred to as the _____ life of the asset
service, useful, or depreciable
Depreciation
Allocation of the cost of a tangible fixed asset
Amortization
Allocation of the cost of an intangible asset
Depletion for tax purposes must always equal cost depletion used for GAAP purposes
False
The revaluation method is allowed for property, plant, and equipment under
IFRS only
The cumulative amount of a tangible asset's cost that has been depreciated in all prior years plus the current year is called
accumulated depreciation
The group and composite methods of depreciation are similar because they both
apply straight-line depreciation to the assets based on average service lives of the assets
The gain or loss on disposal of an asset is calculated as
consideration received less the book value of asset sold
What is the purpose of group or composite depreciation
to reduce the record-keeping costs of determining depreciation
Amortization is appropriate for intangible assets with
finite useful lives
Accelerated Methods
Declining-balance methods, Sum-of-the-years'-digits method
TR Mining has a mineral mine with a depletion base of $500,000. It is estimated that 20,000,000 tons will be extracted over the mines useful life. During year 1, TR extracted 400,000 tons of minerals. The depletion for year 1 is
$100,000
Which of the following are not accumulated methods of depreciation?
Units of output depreciation Straight line depreciation
group depreciation method
defines the collection as depreciable assets that share similar service lives and other attributes
The total cost of plant and equipment to be expensed over its service life is referred to as its
depreciable base
Violet Company prepares its financial statements consistent with IFRS. At the beginning of the year, the company purchased land for $1 million. At the end of the year, the fair value of the land is $1.2 million. On its current year balance sheet, Violet Company should report land at:
either $1 million or $1.2 million
composite depreciation method
is used when assets are physically dissimilar but are aggregated anyway to gain the convenience of a collective depreciation calculation
Companies use accelerated depreciation for tax purposes because
it reduces taxable income in the early years of the asset's life
Which of the following would be included in a journal entry to record the allocation of the cost of a natural resource for the period?
Debit depletion expense Credit the natural resource
Which statement is true about the straight-line method of depreciation
It allocates an equal amount of depreciation to each year over the asset's service life
Which of the following is true when an asset is disposed and group depreciation is used?
It is assumed that the book value of the asset is equal to the proceeds received
If obsolescent were expected to limit the longevity of a protected product, the useful life of a patent might be _______ its legal life
less than
Group depreciation is calculated by
multiplying the group depreciation rate by the total cost of assets in the group for that period
group and composite depreciation commonly is used to
reduce costs of record keeping
Which of the following statements are true regarding depletion?
Units of production depreciation on assets used for natural resources often uses the same activity base that is used to calculate depletion Depletion is a product cost and is included in the cost of inventory of the resource extracted
Activity-Based Depreciation Methods
Units-of-production method
The Toal amount of cost to be allocated over an asset's service life is called its allocation _______
base
When selling a fixed asset the seller recognizes a gain or loss for the difference between the consideration received and the ______ value of the asset sold
book
The allocation of the cost of a tangible fixed asset is referred to as ______, whereas the allocation of the cost of an intangible asset is referred to as ______.
depreciation, amortization
Depletion
Allocation of the cost of natural resources