AC 210 Learn Smart Ch 9
An asset's useful life ______
Is the assets expected economic life to its owner; can be expressed in either years or units
The formula for calculating double-declining-balance depreciation equals (Cost - ____ ____ ) x 2/useful life)
accumulated depreciation
Sunny Skys, Inc. bought a derelict hunting lodge, which it tore down at a cost of $45,000 and replaced with a new lodge. The demolition cost should be ______
capitalized (as an asset because the costs are necessary to get the asset in place and ready for its intended use)
The book (or carrying) value of equipment equals Equipment ______.
minus accumulated depreciation
The estimated amount a long-lived asset is expected to be sold for at the end of its useful life is the _____ value.
salvage
True or false: Depreciation is not intended to report an asset at its current value.
true
a productive asset ______
is used to produce goods or services that will be sold to customers
On January 11, Ace Electronics bought a new cash register for $2,500. In calculating depreciation expense for the year ended December 31, Ace's accountant will assume that the cash register was purchased on ______
jan 1
Another term for residual value is _____ value.
salvage
In the case of a basket purchase, the cost of the land and building is ______
split among the assets purchased in proportion to the market value of the assets as a whole
In the case of a basket purchase, the cost of the land and building is ______.
split among the assets purchased in proportion to the market value of the assets as a whole
Miss Hap, the company bookkeeper, recorded the annual repair costs on the company's machinery as an increase to the machinery account. As a result, which of the following is true?
stockholder's equity and assets will be overstated
(Cost - residual value) x (1/useful life) is the formula for calculating the ______ - ______ method of depreciation.
straight line
Match each depreciation method with the applicable description
straight line (Does the best job of matching the expense with the related revenue when an asset is used evenly over its useful life), units of production (Is the best method to use when the amount of an asset's use varies significantly from one accounting period to another Is the best method to use when the amount of an asset's use varies significantly from one accounting period to another), double declining (Is the best method to use when an asset is productive in its earliest years but quickly loses its usefulness Is the best method to use when an asset is productive in its earliest years but quickly loses its usefulness)
What is the effect of recording depreciation expense on the accounting equation?
total assets decrease, total stockholders equity decreases
Busy Beaver, Inc. signed a $315,000, 5-year note payable to buy a new $315,000 industrial veneer cutter. Busy Beaver paid $5,000 cash for transportation of the machine and $750 cash for installation costs. What is the overall effect of this transaction on the accounting equation?
total liabilities increase by $315,000, total assets increase by $315,000, machinery (asset) increases $320,750
(Cost-residual value) x (actual production this period/estimated total production) is the formula for calculating ______ depreciation.
units of production
Which depreciation method results in higher depreciation expense when the asset is used more?
units of production
Acme, Inc., bought land and a building for $150,000. Acme plans to use the building for 20 years and then sell it. What is the useful life of the land?
unlimited
The entry to record the purchase of $10,000 of equipment by signing an $8,000 note and paying the rest with cash is recorded with a _____
$10,000 debit to equipment, $8,000 credit to notes payable, and $2,000 credit to cash
The list price of a computer was $100,000. The sales tax on the computer was 5%. The delivery cost was $1,000. The cost to assemble the computer was $500. The Equipment account should be debited for a total of ______
$106,500
On January 1, X-it Company bought a new delivery truck for $30,000. X-it plans to use the truck for 4 years, after which it will be sold for $6,000. Depreciation Expense for the 1st year using double-declining-balance equals ______.
$15,000 ($15,000 (=($30,000 cost - $0 Accumulated Deprecation) x 2/4)
The Three Little Pigs purchased three houses for a total cost of $160,000. Appraisal values for the three completed houses were: straw house, $40,000; wood house $60,000; and brick house $100,000. Using the basket purchase allocation, the recorded value of the brick house should be _____
$80,000 (the recorded value of the brick house = 80,000 or (100,000/(40,000 + 60,000 + 100,000)) x $160,000)
Assuming straight-line is used, which of the following is the formula for calculating revised annual depreciation?
(Book value-new residual value) x (1/remaining Useful life)
Vango, Inc. bought a new delivery van during the year. Which of these costs should be expensed as ordinary repairs and maintenance?
100 oil change, 900 for cleaning the van
Dew Drop Inn had net revenue of $117,000 in 2020 and $100,000 in 2021. Its fixed assets were $400,000 at the end of 2019, $380,000 at the end of 2020, and $360,000 at the end of 2021. In which year was the fixed asset turnover ratio better?
2020, because the ratio was higher
On October 1, X-it Company bought a new delivery truck for $30,000. X-it plans to use the truck for 4 years, after which it will be sold for $6,000. What is depreciation expense for the year ended December 31 that year using double-declining-balance?
3,750 ($3,750 (=$30,000 x 2/4 x 3/12)
X-it Company, signed a $500,000, 5-year note payable to buy a new industrial machine. The company paid $2,000 cash for transportation of the machine and $1,000 cash for installation costs. The journal entry to record this transaction will include a ______
503,000 debit to machinery, 500,000 credit to notes payable, 3,000 credit to cash
Shenandoah Skies built a new lodge for its ski resort. Which of the following costs should be capitalized?
7,000 in architect fees, 4,200 paid in sales tax on the lumber to build the lodge, 70,000 cost of lumber to build the lodge
On January 1, X-it Company bought a new delivery truck for $30,000. X-it plans to use the truck for 4 years, during which it will be driven 50,000 miles. The truck will be worthless at the end of the 4 years. If the truck was driven 15,000 miles in its 1st year, Depreciation Expense for the year using units-of-production is ______.
9,000 ($9,000 (or $30,000 x 15,000 miles/50,000 miles).
On January 1, Busy Beaver bought a new industrial lathe for $210,000. It expects to use the lathe for 10,000 hours over the next 5 years and then sell it for $10,000. Busy Beaver used the lathe for 2,000 hours in its 1st year and 2,500 hours in its 2nd year. Accumulated Depreciation at December 31 of the 2nd year, using units-of-production, equals ______.
90,000 (Expense for year 1 equals $40,000 (=($210,000-10,000) x 2,000/10,000). For year 2, Depreciation Expense equals $50,000 (= ($210,000 - 10,000) x 2,500 hours/10,000 hours). The Accumulated Depreciation is $40,000 + 50,000 or $90,000)
Select all of the items below in determining the cost of purchased equipment
Add the sales tax, Add the installation costs, Subtract the purchase discount, Add the delivery costs, Add the list price
On-a-Roll, Inc. amortizes its patent of $20,000 over 20 years. The adjusting entry to record amortization results in a(n) ______.
decrease to net income on the income statement and assets on the balance sheet
Depreciation allocates the cost of a long-lived asset to _____
Depreciation Expense over the periods the asset is used to generate revenue
Depreciation allocates the cost of a long-lived asset to _____.
Depreciation Expense over the periods the asset is used to generate revenue
Which of the following is a long-lived asset?
Land on which to build a new store
What effect does the residual value have on a long-lived asset's depreciable cost?
The greater the residual value the smaller the depreciable cost
When does impairment occur?
When circumstances interfere with the ability to recover the value of the asset through future operations
Tangible assets are first recorded at ______
all costs to acquire them and prepare them for use
On-a-Roll, Inc. amortizes its copyright of $20,000 over 20 years. Miss Hap, the bookkeeper, forgot to record the amortization in the current year. The effect of this mistake causes ______.
assets and net income to be overstated
The effect of capitalizing a cost that should have been expensed causes ______
assets have been overstated on the balance sheet and expenses to be understated on the income statement
If management was to unethically capitalize costs that should not have been, which of the following would be misstated?
assets would be overstated, stockholders equity would be overstated
Which method will report a lower net income in the first year of an asset's life?
declining-balance
An asset's cost minus accumulated depreciation is its ______ value.
book
Which of the following would cause the balance sheet to appear stronger and income statement to appear more profitable than it should?
capitalizing costs that should be expensed
Depreciation Expense of a long-lived asset calculated using the straight-line depreciation method will be a ______ amount each year.
constant
An asset's book value or carrying value is its ______.
cost minus accumulated depreciation
Thermal, Inc. bought a new office computer for $5,000 cash. The journal entry to record this transaction will include a $5,000 ______
credit to cash, debit to equipment
Which account is debited in an adjusting entry to record depreciation on machinery?
depreciation expense
What effect will the units-of-production depreciation method have when the actual production is higher than in other periods?
depreciation expense will be higher
The adjusting entry to record depreciation debits ___ ___ and credits ___ ___
depreciation expense, accumulated depreciation
Ordinary repairs and maintenance costs should be _____
expensed as incurred
Which of the following may lead to a revision of an estimate of a company's depreciation expense?
extraordinary repairs that significantly extend the assets usefulness, a change in the estimated useful life, a change in the estimated residual value
On January 1, Busy Beaver bought a new industrial lathe for $210,000. It expects to use the lathe for 10,000 hours over the next 5 years and then sell it for $10,000. Busy Beaver used the lathe for 2,000 hours in its 1st year and 2,500 hours in its 2nd year. Using units-of-production, Depreciation Expense will be ______
greater in the second year since the lathe was used more
Depreciation and impairment are different in that only ______.
impairment represents the decline in the current value of the related asset
depreciation expense is reported on the ______ while accumulated depreciation is reported on the _____
income statement, balance sheet
Capitalized costs differ from expenses in that only capitalized costs result in a(n) _____
increase to long-lived assets
A higher residual value will result in a(n) _____ depreciation expense per year and a(n) ______ net income
lower, higher
Assuming straight-line depreciation is used, a higher estimated useful life will result in a(n) _____ depreciation expense per year and a(n) _____ net income.
lower, higher
A company should depreciate a long-lived tangible asset to ______.
match part of the cost of the asset with the revenues generated by the asset
An asset's useful life ______.
may be expressed in terms of time or units of capacity
Executives at WorldCom committed an $11 billion fraud by capitalizing costs that should have been expensed. What was the effect of this fraud on WorldCom's income statement?
net income too high, expenses too low (retained earnings also to high but it does not appear on income statement)
The entry to record annual straight-line depreciation will decrease a company's ______
net income, total assets, and asset book value
The formula for the fixed asset turnover ratio equals ______
net revenue/average net fixed assets
Ace Electronics bought a new cash register for $2,500. Ace originally planned to use the cash register for 4 years and then sell it for $200. After 4 years, Ace had recorded $2,300 of depreciation. If Ace continues to use the cash register, still planning to sell it eventually for $200, then Ace should record ______.
no additional depreciation
Which of the following costs associated with long-lived assets are expensed, not capitalized?
ordinary repairs/maintenance, immaterial repairs and maintenance
Thermal, Inc. bought a new computer system for $50,000 cash. What is the effect of this purchase on the company's total assets? Total assets _____
remain the same
The expenditure incurred for changing the oil in the company's fleet of trucks is debited to _____
repairs and maintenance expense
Computit bought a new copier machine. Which of these costs should be expensed?
replacement of the toner for the copy machine, annual maintenance cost
The straight-line depreciation method ______.
reports an equal amount of depreciation expense each year