chapter 7 MGMT 200
_____ = Research and development costs _______= Purchase price plus costs necessary to get asset ready for use
1. expensed 2. capitalized
Which account is credited in a journal entry to record depreciation on machinery?
Accumulated Depreciation
Where is the account accumulated depreciation on equipment found on the financial statements?
As a contra account to equipment on the balance sheet
Which of these are parts of the journal entry to record depreciation?
Debit Depreciation Expense Credit Accumulated Depreciation
The purchase price and all costs to bring an asset to its desired condition and location for use should be ______.
capitalized
The accumulated depreciation account is classified as a(n)
contra asset
protected for 70 years -
copyright
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
MACRS is commonly used for ___
tax reporting
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.
straight line is commonly used for ___
financial statement purpose
A(n)_________is a contractual arrangement in which one entity grants the purchaser the exclusive right to use the trade name, formulas, and product rights within a specific geographic area for a specific period of time. (Enter one word per blank)
franchise
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
what is the formula for the profit margin ratio
net income divided by net sales
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
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
Which of the following are expenditures for assets subsequent to acquisition?
- improvements - additions - repairs and maintenance
Other terms used for an activity-based depreciation method are:
-units of output method-units of production method
On January 1, 2018, Lennox Corporation purchased equipment for $100,000. Lennox depreciated the equipment straight--line over 10 years with no residual value. What is the book value of the equipment on January 1, 2021?
$70,000 Rationale: $100,000/10 years = $10,000 depreciation per year. Historical cost of $100,000 less $30,000 depreciation (for 2018, 2019, and 2020) = $70,000.
The formula to calculate an activity-based depreciation rate is:
(cost - residual value)/estimated total production.
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 Credit equipment $90,000 Debit accumulated depreciation $40,000
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.
Which of the following are commonly used depreciation methods? (Check all that apply)
Straight-line *Activity-based *Declining-balance
Which of the following does not differ among the different depreciation methods?
Total depreciation recognized over the asset's service life.
Which of the following items are initially recorded as an expense on the income statement? (Check all that apply)
advertising costs - research and development costs - internally developed intangibles
allocating the cost of intangible assets to expense is referred to as
amortization
the allocation of the costs of an intangible asset is
amortization
The gain or loss on disposal of an asset is calculated as:
amount received less the book value of asset sold
Where is the account accumulated depreciation on equipment found on the financial statements?
as a contra account to equipment on the balance sheet =
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 formula for calculating the double-declining-balance method is
book value at beginning of year x 2/estimated service life
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 credit gain on exchange of asset 30,000 debit accumulated depreciation 70,000 credit equipment 90,000
The journal entry to retire old equipment that is not fully depreciated includes a:
debit to loss debit to accumulated depreciation credit to equipment
The allocation of the cost of a tangible fixed asset is referred to as _______
depreciation
On January 1, 2018, Pritchett Corporation purchased equipment for $50,000. The equipment had a five-year life with a $10,000 residual value. Pritchett uses the straight-line depreciation method. What is the book value of the equipment on January 1, 2021?
depreciation expense is (50,000-10,000)/5 = 8,000 per year. 50,000 less accumulated depreciation of 24,000 = 26,000
The formula for straight-line depreciation is
(cost - residual value)/service life.
a _____ is the exclusive right to manufacture a product or use a process granted for a period of ______ years
patent; 20
