chapter 7 smart book
The residual value of an intangible asset is usually
zero
An asset ___ occurs when an asset is no longer useful, but cannot be sold
retirement
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
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
In accounting, expenditures recorded as assets are said to be _____.
capitalized
The purchase price and all costs to bring an asset to its desired condition and location for use should be ______.
capitalized
True or false: Depreciation is a valuation method for property and equipment.
false
True or false: Internally developed goodwill should be capitalized as an asset.
false
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
Which of the following items typically are classified as equipment?
Computers and printers used in office Machinery used in manufacturing
Using the declining balance method, depreciation will be
higher in earlier years, but lower in later years.
Long-term tangible assets include
land, equipment, buildings
Use of MACRS for tax purposes usually results in ____________ income tax in the earlier years of an asset's life.
less
The formula for calculating declining balance depreciation is the depreciation rate per year times
the book value at the beginning of the year.
Straight-line deprecation is calculated as the depreciable cost divided by
the estimated service life of the asset.
A change in accounting estimate requires a company to account for the change
in the current and future years
The types of expenditures that can occur subsequent to an asset's acquisition are
-repairs and maintenance -additions -improvements
Which account is credited in a journal entry to record depreciation on machinery?
Accumulated depreciation
Which of the following are commonly used depreciation methods?
Declining-balance Activity-based Straight-line
MARCS VS. straight-line
Straight-line commonly used for financial statement purposes MACRS commonly used for tax reporting
The depreciation rate we use under the declining-balance method is a multiple of the
Straight-line method
Larry purchases land to be used for a new corporate headquarters. Which of the following items are capitalized in the cost of land?
Title insuranceLegal fees to secure titleCosts to remove an old buildingGrading the land
What are the financial statement effects of using the declining balance method of depreciation as compared to the straight-line method in the first year of an asset's life?
Total assets are lower. Net income is lower.
Depreciation is a process of cost _______- and not a process of valuation
allocation
Allocating the cost of intangible assets to expense is referred to as _____.
amortization
Recording depreciation results in the allocation of the cost of a long-term asset to the years during which the asset provides
benefits
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 accumulated depreciation account is classified as a(n)
contra asset
Allocation of the cost of natural resources
depletion
Straight-line, declining-balance, and activity-based refer to methods commonly used to ______ property, plant and equipment
depreciate
Allocation of the cost of a tangible fixed asset
depreciation
The key factor in classifying items as repairs and maintenance is that
future benefits are not provided beyond those originally anticipated from the asset.
Intangible assets that are acquired from other entities are referred to as purchased intangibles, whereas intangibles that are created by a company are referred to as
internally developed intangibles.
The distinction between land and land improvements is that:
land has an indefinite life
What is the formula for the profit margin ratio?
net income divided by net sales
The declining balance method of depreciation is a multiple of the
straight-line rate of depreciation.
Which of these are parts of the journal entry to record depreciation?
- Debit depreciation expense- credit accumulated depreciation
The cost allocation for property, plant, and equipment is referred to as ________ while the cost allocation for intangible assets is referred to as _______
Depreciation & amortization
The journal entry to retire old equipment that is not fully depreciated includes a:
debit to accumulated depreciation credit to equipment debit to loss
An intangible asset that is measured as the purchase price less the fair value of the net identifiable assets is called
goodwill
When a company acquires a business in a business acquisition and the purchase price is greater than the fair value of the net assets acquired, the excess is reported as
goodwill
The cost of land improvements are capitalized separately from land because land improvements tend to have a_____ useful life.
limited
__________ value is the amount the company expects to receive for the asset at the end of its service life.
residual
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
Total depreciation recorded over an asset's service life is:
the same regardless of the depreciation method used
Blake uses the activity-based depreciation method. Blake purchases equipment for $100,000 and expects to use the equipment for 40,000 machine hours. The machine has a residual value of $20,000. The depreciation rate is
$2.00 Rationale:($100,000 - 20,000)/40,000 machine hours = $2.00 per machine hour.
Where is the account accumulated depreciation on equipment found on the financial statements?
As a contra account to equipment on the balance sheet
Units of production or units of output are alternative terms for the
activity-based depreciation method
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
Which depreciation methods allocate the cost of long-term assets based on time?
straight-line declining-balance
Which of the following does not differ among the different depreciation methods?
Total depreciation recognized over the asset's service life.
The formula for straight-line depreciation is
(cost - residual value)/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
The formula to calculate an activity-based depreciation rate is:
(cost - residual value)/estimated total production.
Which items are considered changes in estimates that would be treated on a prospective basis in the current period and future periods?
Change in service life of an asset Change in residual value of an asset
Sarah purchases land to be used for a new storage facility. Which of the following items are capitalized in the cost of land?
Commissions Legal fees to secure title Costs to remove an old building
Which of the following are long-term tangible assets?
Equipment Property
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 costs should be capitalized in the costs of acquiring a building?
Realtor commissions Remodeling building Legal fees to obtain title
Allocation of the cost of an intangible asset
amortization
The gain or loss on disposal of an asset is calculated as:
amount received less the book value of asset sold
For accounting purposes, depreciation is
an allocation of a cost of an asset.
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
When a company purchases another company and the purchase price is greater than the fair value of the net assets acquired, this excess is referred to as ______.
goodwill
Amortization refers to the allocation of the cost of _______ assets to expenses
tangible
The depreciable cost is
the cost of the asset minus the residual value.
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 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 methodunits of output method
Clarion purchases land and prepares it for use. Which of the following items should be capitalized as land improvements?
Cost of driveways,Cost of lawn sprinkler system, Cost of sidewalks
The estimated use the company expects to obtain from an asset before disposing of it is referred to as the ______ life of the asset
useful
When we recognize depreciation, we allocate a portion of the asset's cost to each year in which the asset
provides benefits to the company.