Acc Chpt 7

On December 30, 20X1, Rocket Corp. disposed of equipment with a historical cost of $100,000 and accumulated depreciation of $70,000. The equipment was sold for $80,000 cash. The journal entry to record the sale will include which of the following entries?

Credit gain on sale of equipment $50,000 Debit cash $80,000 Credit equipment $100,000 Debit accumulated depreciation $70,000

On December 30, 20X1, Glaze Corp. disposed of equipment with a historical cost of $50,000 and accumulated depreciation of $30,000. The equipment was sold for $45,000 cash. The journal entry to record the sale will include which of the following entries?

Debit to accumulated depreciation $30,000 Debit to cash $45,000 Credit to equipment $50,000 Credit to gain on sale of asset $25,000

Under what circumstances are accelerated depreciation methods most appropriate?

For an asset that will be used less in the later years of its life. For an asset that will provide greater benefits in earlier years of its life.

The journal entry to record the amortization for a patent would include a debit to ______and credit to________ .

amortization expense, patent

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

amount received less the book value of asset sold

Because the future benefits of research and development costs are uncertain, FASB requires that research and development costs be treated as

an expense on the income statement.

Goodwill may only be recognized

in a business acquisition.

On July 1, year 1, Smith Corp. purchased equipment for $200,000. The equipment has an expected service life of 10 years with no residual value. Smith uses the straight-line method of depreciation. The partial year depreciation for year 1 is

$10,000 Reason: $200,000/10 years = $20,000 per year x 1/2 year = $10,000 depreciation expense in year 1.

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?

$26,000 ($50,000 - 10,000)/5 = $8,000 per year. $50,000 less accumulated depreciation of $24,000 = $26,000)

On October 1, year 1, Kirby Corp. purchased equipment for $100,000. The equipment has an expected service life of 5 years with no residual value. Kirby uses the straight-line method of depreciation. The partial year depreciation for year 1 is

$5,000 Reason: $100,000/5 years = $20,000 per year x 1/4 year = $5,000 depreciation expense in year 1. October 1 - December 31 is 3 months so 1/4 year. $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 service life of 10 years. What is straight-line depreciation for year 1?

$8,000 Reason: ($100,000 - 20,000)/10 years = $8,000 per year

Depreciation depletion Amortization

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

An accelerated depreciation method is appropriate when the asset will provide

greater benefits in the earlier years of the asset's life.

Which of these are parts of the journal entry to record depreciation?

Debit Depreciation Expense Credit Accumulated Depreciation

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 service life of 4 years. What is straight-line depreciation for year 1?

$1,500 Reason: ($10,000 - 4,000)/4 years = $1,500 per year

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 activity-based 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?

$4,500 Reason: The depreciation rate per unit is ($160,000 - $10,000)/100,000 hours = $1.50 per machine hour. Year 2 depreciation is 3,000 hours x $1.50 = $4,500.

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 Reason: $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.

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 activity-based 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?

5,000 Reason: The depreciation 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.

Which account is credited in a journal entry to record depreciation on machinery?

Accumulated Depreciation Reason: Depreciation is recorded with a debit to Depreciation Expense (+E, -SE) and a credit to Accumulated Depreciation (-A)

On December 30, 20X1, Brighton Corp. disposed of equipment with a historical cost of $150,000 and accumulated depreciation of $60,000. The equipment was sold for $70,000 cash. The journal entry to record the sale will include which of the following?

Credit equipment $150,000 Debit cash $70,000 Debit loss on sale of equipment $20,000 Debit accumulated depreciation $60,000

When assets are purchased in a group for a single sum, it is referred to as a

basket purchase

Recording depreciation results in the allocation of the cost of a long-term asset to the years during which the asset provides_____

benefits

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 journal entry to record the amortization of an intangible asset includes

debit to amortization expense. credit to the intangible asset.

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

intangible

An asset that has no physical substance is referred to as a(n)

intangible asset

The FASB requires research and development costs to be expensed because

it is difficult to determine whether costs will result in future benefits.

When we recognize depreciation, we allocate a portion of the asset's cost to each year in which the asse

provides benefits to the company.

Goodwill is recognized only when one company another company.

purchases

In a basket purchase of assets, the cost must be allocated to the individual assets because

the assets have different useful lives.

On December 30, 20X1, Glaze Corp. disposed of equipment with a historical cost of $50,000 and accumulated depreciation of $30,000. The equipment was sold for $10,000 cash. The journal entry to record the sale will include which of the following entries

Debit to cash $10,000 Debit to accumulated depreciation $30,000 Credit to equipment $50,000 Debit to loss on sale of asset $10,000