Accounting Chapter 7 SmartBook

The estimated use the company expects to obtain from an asset before disposing of it is referred to as the _______ life of the asset.

service/useful

The depreciation method that allocates an equal amount of the depreciable base to each year of the asset's service life is the MACRS units-of-output method. straight-line method. double-declining-balance method.

straight-line method.

The formula for straight-line depreciation is service life/(cost + residual value). (cost - residual value)/service life. cost/service life. (cost + residual value)/service life.

(cost - residual value)/service life.

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 asset

Pearce Corporation exchanges old equipment for new equipment. The original cost of the old equipment was $120,000, and its accumulated depreciation at the date of exchange was $40,000. The new equipment received had a fair value of $50,000 and a book value of $32,000. The journal entry to record this exchange will include which of the following entries? Debit accumulated depreciation $40,000 Credit equipment $120,000 Debit equipment $50,000 Credit accumulated depreciation $40,000 Debit loss on exchange $30,000 Debit equipment $32,000

Debit accumulated depreciation $40,000 Credit equipment $120,000 Debit equipment $50,000 Debit loss on exchange $30,000

What is the formula for the profit margin ratio? Gross profit divided by sales. Net income divided by average total assets. Net income divided by average shareholders' equity. Net income divided by net sales.

Net income divided by net sales.

For accounting purposes, depreciation is a decline in value of an asset. the selling price of an asset. an allocation of a cost of an asset.

an allocation of a cost of an asset.

The depreciable cost is cost of the asset minus depreciation expense. historical cost less accumulated depreciation. the cost of the asset minus the residual value. cost of the asset plus the residual value.

the cost of the asset minus the residual value.

Straight-line deprecation is calculated as the depreciable cost divided by the estimated service life of the asset. the residual value of the asset. the cost of the asset.

the estimated service life of the asset.

The service life or useful life of an asset is the time period from the purchase of the asset until it becomes impaired. determined by MACRS tables. the estimated use that the company expects to obtain from the asset before disposing of it.

the estimated use that the company expects to obtain from the asset before disposing of it.

Long-term tangible assets include equipment. land. goodwill. patents. buildings.

equipment. land. buildings.

The term used to describe the amount the company expects to receive for an asset at the end of its service life is impairment value. historical cost. residual value. lower of cost or market value.

residual value.

An asset ________ occurs when an asset is no longer useful, but cannot be sold.

retirement

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 $45,000 Debit equipment $50,000 Debit accumulated depreciation $70,000 Credit gain on exchange of asset $30,000 Credit equipment $70,000 Credit equipment $90,000

Debit equipment $50,000 Debit accumulated depreciation $70,000 Credit gain on exchange of asset $30,000 Credit equipment $90,000

Which of the following are long-term tangible assets? Trademark Property Equipment Accounts receivable Copyright

Property Equipment

_______ value is the amount the company expects to receive for the asset at the end of its service life.

Residual/Salvage

Which of the following are commonly used depreciation methods? Straight-line Activity-based Declining-balance Increasing-balance Value-based

Straight-line Activity-based Declining-balance

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

A retirement or abandonment of an asset is different from a sale of an asset because a gain is recognized for the undepreciated portion of the equipment. a loss must be recognized for the remaining book value. the residual value is included as a gain. no cash is received.

a loss must be recognized for the remaining book value. no cash is received.

The gain or loss on disposal of an asset is calculated as: amount received less the book value of asset sold the fair value of the asset less the accumulated depreciation the cost of the asset less the accumulated depreciation consideration received less the fair value of the asset sold

amount received less the book value of asset sold

In accounting, the term impairment refers to an asset's significant decline in value. cost recovery of an asset for investment purposes. allocation of an asset over its service life. offsetting liabilities against the related assets.

an asset's significant decline in value.

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. net realizable book fair net present

book

The original cost of an asset minus accumulated depreciation is book value. disposal value. residual value. goodwill.

book value.

The original cost of the asset less the accumulated depreciation is the _________ __________ of the asset.

book/carrying value

The purchase price and all costs to bring an asset to its desired condition and location for use should be Blank______. expensed accrued capitalized

capitalized

The journal entry to retire old equipment that is not fully depreciated includes a: credit to equipment debit to loss debit to accumulated depreciation credit to loss debit to cash

credit to equipment debit to loss debit to accumulated depreciation

Straight-line, declining-balance, and activity-based refer to methods commonly used to ________ property, plant, and equipment.

depreciate

The allocation of the cost of a tangible asset over its service life is referred to as ________.

depreciation

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

When an asset has a significant decline in value and is written down, this is called _________.

impairment

The types of expenditures that can occur subsequent to an asset's acquisition are improvements. repairs and maintenance. goodwill. additions.

improvements. repairs and maintenance. additions.

Amortization refers to the allocation of the cost of ________ assets to expense.

intangible

An asset that has no physical substance is referred to as a(n) depreciable asset. finite asset. current asset. intangible asset.

intangible asset.

Otto Inc. retires old equipment with a book value of $2,400. Otto should recognize a gain of $2,400 debit cash for $2,400 recognize a loss of $2,400 not make a journal entry

recognize a loss of $2,400