ACCT 3210: Chapter 11 Preview: PP&E and Intangible Assets-Utilization and Dispositions

True or false: Repairs and maintenance expenditures should be capitalized in the period incurred.

False

The allocation of the cost of an intangible asset over its useful life is called

amortization.

Group and composite depreciation commonly is used to

reduce costs of record-keeping.

The useful life of an intangible asset may be limited by what type of provisions? (Select all that apply.)

legal contractual regulatory

The types of expenditures that can occur subsequent to an asset's acquisition are (Select all that apply.)

repairs and maintenance. additions. rearrangements. improvements.

Which statement is true about the straight-line method of depreciation?

It allocates an equal amount of depreciation to each year of the asset's service life.

To determine whether an impairment loss should be recorded for goodwill, a company should determine if the fair value of the reporting unit is less than its

book value.

The gain or loss on disposal of an asset is calculated as

consideration received less the book value of asset sold.

Which of the following expenditures are classified as repairs and maintenance for a vehicle? (Select all that apply.)

engine tune-up routine oil change

On October 1, year 1, Johnson Corp. purchased equipment for $100,000. The equipment has a useful life of 5 years with no residual value. Johnson uses the double-declining-balance method of depreciation. The partial year depreciation for year 1 is

$10,000

Which of the following are expenditures on assets subsequent to acquisition? (Select all that apply.)

repairs and maintenance additions improvements

If there is a change in an intangible asset's estimated useful life, the change is treated

on a prospective basis.

At the beginning of year 1, Valerie Corp. purchases equipment for $10,000. The equipment has a residual value of $4,000 and an expected useful life of 4 years. What is straight-line depreciation expense for year 1?

$1,500

At the beginning of year 1, Looby Corp. purchases equipment for $100,000. The equipment has a residual value of $20,000 and an expected useful life of 10 years. Assuming straight-line depreciation, what is book value at the end of year 2?

$84,000

Which of the following accounting changes must be justified in the notes to the financial statements?

Changes in depreciation methods

What is the accounting treatment for the discovery of a material error in a previous year?

Previous years' financial statements are restated.

What is the purpose of group or composite depreciation?

To reduce the record-keeping costs of determining depreciation.

If a company bases depreciation expense on the life of a machine in hours, and depreciates the machine for the number of hours used during the year, it is using the ______ method of depreciation.

units-of-production

In accounting, the term impairment refers to

an asset's significant decline in value.

Which of the following would be considered "expenditures subsequent to acquisition" for a building? (Select all that apply.)

Cost of installing solar panels after three months of use of the building Repairing a major roof leak three years after use

The portion of a tangible asset's cost that is recognized as an expense in the current year is called

depreciation expense.

True or false: When accounting for impairments, the two categories for recognizing and measuring the loss are tangible and intangible assets.

False

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 cost of a natural resource less its anticipated residual value is called the _____ _____. (Enter one word per blank.)

depletion base

Expenditures for repairs and maintenance should be

expensed in the period incurred.

No amortization is recorded for

intangible assets with indefinite lives.

The two categories for intangible assets are

intangibles with indefinite lives. intangibles with finite lives.

The amount of use that the company expects to obtain from an asset before disposing of it is referred to as the _____ life of the asset. (Enter only one word.)

service

Which of the following are not accelerated methods of depreciation? (Select all that apply.)

units-of-output depreciation straight-line depreciation

At the beginning of year 1, Kuhn Corp. purchases equipment for $22,000. The equipment has a residual value of $2,000 and an expected useful life of 5 years. What is straight-line depreciation expense for year 3?

$4,000

On October 1, year 1, Kirby Corp. purchased equipment for $100,000. The equipment has a useful life of 5 years with no residual value. Kirby uses the straight-line method of depreciation. The partial year depreciation for year 1 is

$5,000

Which of the following are required when a material error is discovered in a subsequent accounting period that impacts retained earnings? (Select all that apply.)

A prior period adjustment is made to the beginning balance of retained earnings. Previous financial statements are retrospectively restated. A disclosure note describing the nature of the error and the impact of the correction on net income and earnings per share

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 _____. (Enter one word per blank.)

Blank 1: depreciation Blank 2: amortization

Match each term with its definition.

Depreciation <--> Allocation of the cost of a tangible fixed asset Depletion <--> Allocation of the cost of natural resources Amortization <--> Allocation of the cost of an intangible asset

Which of the following terms is equivalent to an asset's useful life to a particular company?

Service life

Which of the following intangible assets are usually considered to have indefinite lives?

Trademarks

Which of the following is an activity-based depreciation method?

Units-of-production method

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

Which items are considered changes in estimates that would be treated on a prospective basis in the current period and future periods? (Select all that apply.)

change in useful life of an asset increasing the residual value of an asset

For natural resources the depletion base is

cost less any anticipated residual value.

Emil Company expects that its asset will be more useful during early years of its life than during later years. In addition, the company estimates that repair costs will increase over time. Which method(s) may help equalize total expenses recognized over the service life of this asset? (Select all that apply.)

declining balance sum-of-the-years digits

Accounting for impairment of value of assets with finite lives and those with indefinite lives

differs

Which of the following are accelerated methods of depreciation? (Select all that apply.)

double-declining-balance method sum-of-the-years'-digits method declining balance method

When an asset has a significant decline in value and is written down, this is called ______.

engine tune-up routine oil change

A subsequent expenditure for an asset increases the future benefits of the asset if it (Select all that apply.)

extends the asset's useful life. increases the quality of the goods or services produced by the asset. increases the operating efficiency of the asset.

Amortization is appropriate for intangible assets with

finite useful lives

The key factor in classifying items as repairs and maintenance is that

future benefits are not provided beyond those originally anticipated from the asset.

When an asset has a significant decline in value and is written down, this is called ______.

impairment

If obsolescence were expected to limit the longevity of a protected product, the useful life of a patent might be _________ its legal life.

less than

Expenditures subsequent to acquisition may be properly capitalized when they increase the asset's useful life or increase its productive capacity. However, most companies set thresholds for capitalizing these expenditures based on

materiality.

A change in accounting estimate requires a company to account for the change

on a prospective basis in the current year and future years.

A change in depreciation method is treated as a change in estimate that is achieved by a change in accounting principle, and is accounted for

prospectively in the current and future periods.

Smith Company calculates annual depreciation of equipment by using the following formula: [(cost-residual value)/useful life]. Smith is applying the depreciation method referred to as

straight-line

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.

Straight-line depreciation is calculated as the depreciable base divided by

the estimated useful life of the asset.

In determining whether an impairment loss should be recognized for goodwill, a company compares the book value of the reporting unit with

the fair value of the reporting unit.