ACCT Chapter 11 Property, Plant, and Equipment and Intangible Assets: Utilization and Disposition

The useful life of an intangible asset may be limited by what type of provisions?

regulatory, contractual or legal

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.

The measurement of an impairment loss in step 2 is the difference between

the asset's book value and its fair value.

The formula for calculating declining balance depreciation is the depreciation rate per year times

the book value at the beginning of the year.

An impairment occurs when the

undiscounted sum of estimated future cash flows is less than the asset's book value.

Which of the following are required when a material error is discovered in a subsequent accounting period that impacts retained earnings?

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

A subsequent expenditure for an asset increases the future benefits of the asset if it ________.

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

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

consideration received less the book value of asset sold.

For natural resources the depletion base is

cost less any anticipated residual value.

When accounting for impairments, the two categories for recognizing and measuring the loss are

assets to be held and used and assets held for sale.

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

changes in depreciation methods.

Declining balance depreciation methods multiply _____ by an annual rate that is a multiple of the straight-line rate.

cost less accumulated depreciation

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? (Select all that apply.)

credit to equipment $100,000 debit cash $80,000 credit gain on sale of equipment $50,000 debit accumulated depreciation $70,000

Allocation of the cost of an intangible asset is called

amortization.

The cost of a natural resource less its anticipated residual value is called the _________ _________.

depletion base

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

service life

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.

service, useful, or depreciable

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

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

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

differs

Allocation of the cost of an intangible asset

Amortization

Allocation of the cost of natural resources

Depletion

Allocation of the cost of a tangible fixed asset

Depreciation

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

False

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.

Which of the following intangible assets are usually considered to have indefinite lives? copyrights Franchises Patents Trademarks

Trademarks

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

Units-of-production method

What are the issues when accounting for impairments?

When to recognize the impairment. How to measure the impairment loss.

On December 30, 20X1, Brighton Corp. disposed of equipment with a historical cost of $150,000 and accumulated depreciation of $60,000. The equipment was sold for $70,000 cash. The journal entry to record the sale will include which of the following entries? (Select all that apply.)

debit loss on sale of equipment $20,000 credit equipment $150,000 debit cash $70,000 debit accumulated depreciation $60,000

The allocation of the cost of a tangible fixed asset over a period of time is referred to as __________, whereas the allocation of the cost of an intangible asset is referred to as ________ .

depreciation; amortization

Amortization is appropriate for intangible assets with

finite useful lives

An intangible asset that is measured as the consideration paid less the fair value of the net identifiable assets is called

goodwill.

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.

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

on a prospective basis.

For plant, property, and equipment, U.S. GAAP requires the investigation of possible impairment

only if events or changes in circumstances indicate that the asset may not be recoverable.

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.

In measuring an impairment loss, the difference between the asset's book value and its fair value is

recognized as an impairment loss.