Accounting Chapter 7

If equipment is retired, which of the following accounts would be debited?

Accumulated depreciation.

On October 1, a franchise was purchased for $2,000,000. The franchise agreement is for 10 years. What is the amount of amortization expense by the end of the first year, December 31 (using partial year straight-line amortization)? (Do not round intermediate calculations.)

$50,000.

The original cost of a piece of equipment was $100,000. The equipment was depreciated using the straight-line method with annual depreciation of $20,000. After two years, the fair value of the equipment is $82,000. How much is the book value of the equipment at the end of the second year?

$60,000.

Accumulated depreciation is:

A contra-asset.

Which of the following is properly recorded as an intangible asset?

A purchased patent.

Which of the following correctly describes the nature of depreciation?

Depreciation represents the allocation of the cost of property, plant, and equipment over its service life.

Which of the following depreciation methods typically results in the highest depreciation expense during the first year of an asset's life?

Double declining balance method.

Which of the following expenditures should be recorded as an expense?

Ordinary repairs and maintenance.

A delivery truck was purchased for $60,000 and is expected to be used for 5 years and 100,000 miles. The truck's residual value is $10,000. By the end of the first year, the truck has been driven 16,000 miles. What is the depreciation expense in the first year using activity-based depreciation?

$8,000.

Which of the following expenditures should be capitalized?

An improvement to a tangible asset.

Return on assets is equal to:

Net income divided by average total assets. Profit margin times asset turnover.

The amount of the gain on the sale of equipment equals:

The selling price minus the book value of the equipment.

A company purchased land and building from a seller for $900,000. A separate appraisal reveals the fair value of the land to be $200,000 and the fair value of the building to be $800,000. For what amount would the company record land at the time of purchase?

$180,000.

Equipment originally costing $100,000 has accumulated depreciation of $65,000. If it is sold for $40,000, the company should record:

A gain of $5,000.

Equipment originally costing $65,000 has accumulated depreciation of $25,000. If the equipment is sold for $30,000, the company should record:

A loss of $10,000.

Over the entire service life of an asset, which depreciation method records the highest total depreciation?

All the methods result in the same total depreciation.

Depreciation in accounting is the:

Allocation of an asset's cost to an expense over time.

The asset's cost less accumulated depreciation is called:

Book value.

A long-term asset is recorded at the:

Cost of the asset plus all costs necessary to the asset ready for use.

Which of the following intangible assets are not amortized?

Goodwill.

Which of the following expenditures should be recorded as an asset?

Interest costs during the construction period of a new building. An addition which increases future benefit.

An exclusive 20-year right to manufacture a product or to use a process is a:

Patent.

Which of the following is not recorded as an intangible asset in the balance sheet?

Research and development.

Which of the following will result in higher depreciation expense in the first year of the asset's life?

Short service life and low residual value.

Which of the following statements is false regarding the amortization of intangible assets?

The service life of an intangible asset is always equal to its legal life.