ch 11

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

Cost less Accum Deprec

Straight Line

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

unique to goodwill

Its cost is not separable from the company as a whole. Its cost cannot be directly associated with a specific identifiable right.

Which of the following are required disclosures for an impairment loss? (Select all that apply.)

description of the impaired asset method used to determine fair value

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

differs

The amount of use that the company expects to obtain from an asset before disposing of it is referred to as the

service, useful, or depreciable

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

Book Value at Beg of year

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

10000 The depreciation rate is 1/5 x 2 = 40%. $100,000 x 40% x 1/4 = $10,000

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?

1400

What would require possible impairment tests

A significant decrease in market price An adverse change in the business climate A decline in the asset's physical condition

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

Service LIfe

In accounting, the term impairment refers to

an asset's significant decline in value.

Exp that qual as an addition

capitalized. depreciated over the remaining useful life of original asset or its own useful life, whichever is shorter.

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

consideration received less the book value of asset sold.

An impairment loss for intangible assets with indefinite lives is calculated as the book value less the

fair value

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

fair value of reporting unit

No amortization is recorded for

intangible assets with indefinite lives.

intangable cateorgies are

intangibles with finite lives. intangibles with indefinite lives.

Under U.S. GAAP, if a company recognizes an impairment loss,

later recovery of the impairment loss is prohibited.

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

recognized as an impairment loss.

Under IFRS reporting, an impairment loss is measured as the difference between the book value and the:

recoverable amount

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

regulatory contractual legal

Which of the following are required disclosures for an impairment loss assuming the loss is not disclosed separately on the face of the income statement? (Select all that apply.)

the description of the impaired asset the method used to determine fair value the amount of the loss the facts and circumstances leading to the impairment

An impairment occurs when

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

On January 1, year 1, Clem Corp. purchased equipment for $160,000. The equipment has a residual value of $10,000, and has a life of 100,000 hours. Clem uses the units-of-production method of depreciation. In year 1, Clem used the machine 2,000 hours, and in year 2, Clem used the machine 3,000 hours. What is the depreciation expense for year 2?

4500 The units-of-production rate per unit is ($160,000 - $10,000) = 150000 150,000/ 100,000 hours = $1.50 per machine hour. Year 2 depreciation is 3,000 hours x $1.50 = $4,500.

The cumulative amount of a tangible asset's cost that has been depreciated in all prior years plus the current year is called

Accum Deprec

Depreciation, depletion, and amortization, depletion

Allocation of the cost of a tangible fixed asset, intangible asset , natural resources

The journal entry to record depreciation expense includes (Select all that apply.)

DE AD

At the beginning of Year 1, Mitchell Company purchased office equipment for $15,000. The machine has an estimated residual value of $1,000 and an estimated service life of 5 years. If Mitchell uses straight-line depreciation, it will make which of the following entries related to depreciation at the end of Year 1?

Debit to depreciation expense for $2,800 15000-1000 = 14000/5 = 2800 x 1 = 2800 Deb Depr Exp

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

Depreciation Expense

Under U.S. GAAP

There is no equivalent recoverability test An impairment loss is required when the recoverable amount is less than the asset's book value.

Identify the correct treatment of recovered impairment losses relating to indefinite-life intangible assets under IFRS.

They must be reversed

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

Trademarks

Intangible assets with indefinite useful lives should be tested for impairment

annually or more frequently if events or changes in circumstances indicate possible impairment.

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.

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

cost less accumulated depreciation

Marston acquired assets for $100,000. At the end of year 3, the assets had accumulated depreciation of $40,000. An impairment loss was indicated, and the fair value of the assets was $48,000. The journal entry to record the impairment loss will include a

debit to loss on impairment of $12,000.

Marston acquired assets for $100,000. At the end of year 3, the assets had accumulated depreciation of $40,000. An impairment loss was indicated, and the fair value of the assets was $48,000. The journal entry to record the impairment loss will include (Select all that apply.)

debit to loss on impairment of $12,000. debit to accumulated depreciation of $40,000. credit to assets of $52,000.

Which of the following are accelerated methods of depreciation?

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

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

depletion base

A _ _is an operating segment of a company or a component of an operating segment for which discrete financial information is available and management regularly reviews the operating results of that component.

reporting unit

In calculating present value, a traditional approach incorporates what items into the discount rate?

risk and uncertanty

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

Estimated USeful life

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

5000 $100,000/5 years = $20,000 per year x 1/4 year = $5,000 depreciation expense in year 1.

On January 1, year 1, Roark Corp. purchased equipment for $120,000. The equipment has a residual value of $20,000, and has a life of 1,000,000 hours. Roark uses the units-of-production method of depreciation. In year 1, Roark used the machine 30,000 hours, and in year 2, Roark used the machine 50,000 hours. What is the depreciation expense for year 2?

5000 Reason: The units-of-production rate per unit is ($120,000 - $20,000)/1,000,000 hours = $0.10 per machine hour. Year 2 depreciation is 50,000 hours x $0.10 = $5,000.

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?

84000 Reason: ($100,000 - 20,000)/10 years = $8,000 per year x 2 years = 16,000 accumulated depreciation. Book value is cost - accumulated depreciation

Which of the following events would require the investigation of a possible impairment? (Select all that apply.)

A significant decrease in market price. A significant adverse change in how the asset is being used.

Under U.S. GAAP an impairment loss is required when the undiscounted sum of estimated future cash flows from an asset is less than the asset's book value. Which of the following statements are true regarding recoverability under IFRS reporting? (Select all that apply.)

An impairment loss is required when the recoverable amount is less than the asset's book value. There is no equivalent recoverability test

True or false: Expenditures that qualify as an addition should be expensed in the period incurred.

False

If an impairment loss is recognized for an intangible asset with a finite life, which of the following occurs? (Select all that apply.)

Later recovery of the impairment is prohibited. The written-down book value is the new cost basis for future amortization.

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.

Multiple choice question. units-of-production

What item(s) are used to determine the present value of cash flows when the expected cash flow approach is used?

Probability weighted cash flow and the risk-free interest rate

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

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

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

More useful during early years, more repairs later

Sum of Year, Delciing Balance

True or false: Assets held for sale are not depreciated or amortized while classified as held for sale.

True