Ch-7 Long-term assets

The formula to calculate the depreciation for the units-of-production method or activity-based depreciation, is ((cost - residual value)/total estimated production) x ______.

current-year activity or production

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

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

impairment

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.

True or false: The initial cost of property, plant, and equipment includes the purchase price and all expenditures necessary to bring the asset to its desired condition and location for use.

True

The formula to calculate an activity-based depreciation rate is:

(cost - residual value)/estimated total production.

The formula for straight-line depreciation is

(cost - residual value)/service life.

Which of the following are commonly used depreciation methods?

Activity-based, Declining-balance, straight-line

Depletion

Allocation of the cost of a natural resource over its service life.

Amortization

Allocation of the cost of an intangible asset over its service life.

Wall Corporation exchanges old equipment for new equipment. The original cost of the old equipment was $100,000, and its accumulated depreciation at the date of exchange was $60,000. The new asset received had a fair value of $80,000 and a book value of $65,000. The journal entry to record this exchange will include which of the following entries?

Debit accumulated depreciation $60,000 Debit equipment $80,000 Credit gain on exchange of asset $40,000 Credit equipment $100,000

Cheng Corporation exchanges old equipment for new equipment. The original cost of the old equipment was $90,000, and its accumulated depreciation at the date of exchange was $40,000. The new equipment received had a fair value of $40,000 and a book value of $35,000. The journal entry to record this exchange will include which of the following entries?

Debit equipment $40,000 Debit loss on exchange $10,000 Debit accumulated depreciation $40,000 Credit equipment $90,000

Krasel Corporation exchanges old equipment for new equipment. The original cost of the old equipment was $90,000, and its accumulated depreciation at the date of exchange was $70,000. The new asset received had a fair value of $50,000 and a book value of $45,000. The journal entry to record this exchange will include which of the following entries?

Debit equipment $50,000 Debit accumulated depreciation $70,000 Credit equipment $90,000 Credit gain on exchange of asset $30,000

An asset that has no physical substance is called a(n) ______ asset.

Intangible

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

It allocates an equal amount of depreciation to each year the asset is used.

What is the formula for the profit margin ratio?

Net income divided by net sales.

Which of the following are expenditures for assets subsequent to acquisition?

Repairs & maintenance, Additions, Improvements

______ value is the amount the company expects to receive for the asset at the end of its service life.

Residual/Salvage

Which of the following does NOT differ among the different depreciation methods?

Total depreciation recognized over the asset's service life.

A retirement or abandonment of an asset is different from a sale of an asset because

a loss must be recognized for the remaining book value no cash is received

Units of production or units of output are alternative terms for the ______ - ______ depreciation method.

activity based

Depreciation:

allocation of the cost of a tangible fixed asset over its service life.

Allocating the cost of intangible assets to expense is referred to as

amortization

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

amount received less the book value of asset sold

In accounting, the term impairment refers to

an asset's significant decline in value.

When selling a fixed asset, the seller recognizes a gain or loss for the difference between the amount received and the ______ value of the asset sold.

book

The original cost of an asset minus accumulated depreciation is

book value

The original cost of the asset less the accumulated depreciation is the ______ ______ of the asset.

book value

The formula for calculating the double-declining-balance method is

book value at beginning of year x 2/estimated service life

The journal entry to retire old equipment that is not fully depreciated includes a:

debit to accumulated depreciation debit to loss credit to equipment

Straight-line, declining-balance, and activity-based refer to methods commonly used to _____ property, plant, and equipment.

depreciate

The allocation of the cost of a tangible asset over its service life is referred to as _____.

depreciation

Which of the following are long-term tangible assets?

land, buildings, equipment, natural resources

The profit margin ratio is defined as ______ ______ divided by net sales.

net income

Which of the following are long-term intangible assets?

patents, trademarks, copyrights, franchises, goodwill

Otto Inc. retires old equipment with a book value of $2,400. Otto should

recognize a loss of $2,400

The depreciable cost of an asset is the asset's cost minus its estimated ______ value.

residual

When an asset is no longer useful, but cannot be sold, it is called an asset

retirement

The estimated use the company expects to obtain from an asset before disposing of it is referred to as the _____ life of the asset.

service

Which depreciation methods allocate the cost of long-term assets based on time?

straight-line, declining-balance

Amortization refers to the allocation of the cost of _____ assets to expense.

tangible

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

the book value at the beginning of the year.

The depreciable cost is

the cost of an asset minus its residual value

Straight-line deprecation is calculated as the depreciable cost divided by

the estimated service life of the asset.

The service life or useful life of an asset is

the estimated use that the company expects to obtain from the asset before disposing of it

Total depreciation recorded over an asset's service life is:

the same regardless of the depreciation method used

Straight-line and declining balance methods allocate the cost of a long-term asset based on ______, while an activity-based method allocates the cost of an asset based on its ______.

time, use

Other terms used for an activity-based depreciation method are:

units of production method, units of output method

The purchase price and all costs to bring an asset to its desired condition and location for use should be ______

capitalized

The term used to describe the amount the company expects to receive for an asset at the end of its service life is

residual value

The depreciable cost of an asset is the asset's cost minus its estimated ______ value.

residual or salvage