ACCT CH 7
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
the estimated use that the company expects to obtain from the asset before disposing of it
service life of an asset
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
allocation of the cost of a tangible fixed asset
depreciation
an allocation of a cost of an asset
depreciation
the allocation of the cost of a tangible asset over its service life
depreciation
the amount the company expects to receive for the asset at the end of its service life
residual
An asset ____ occurs when an asset is no longer useful, but cannot be sold.
retirement
what is the journal entry to record depreciation?
-debit depreciation expense -credit accumulated depreciation
Long-lived assets are typically classified in two categories...
tangible and intangible
long term assets are classified as...
tangible and intangible
The gain or loss on disposal of an asset is calculated as:
amount received less the book value of asset sold
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?
(100,000-20,000)/ 10 yrs = $8,000 per year
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 types of expenditures that can occur subsequent to an asset's acquisition are...
-improvements -repairs and maintenance -additions
Cray uses the activity-based depreciation method. Cray purchases equipment for $210,000 and expects to use the equipment for 60,000 machine hours. The machine has a residual value of $30,000. The depreciation rate is
210,000 - 30,000 = 180,000 / 60,000 hrs = $3.00 per machine hour
allocation of the cost of intangible asset
amortization
Where is the account accumulated depreciation on equipment found on the financial statements?
as a contra account to equipment on the balance sheet
Recording depreciation results in the allocation of the cost of a long-term asset to the years during which the asset provides...
benefits or revenues
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 first step in determining whether an impairment loss should be recorded is to determine if the sum of estimated future cash flows from an asset is less than the asset's
book value
The purchase price and all costs to bring an asset to its desired condition and location for use should be ___________
capitalized
the accumulated depreciation account is classified as a(n)
contra asset
allocation of the cost of natural resources
depletion
an asset's significant decline in value
impairment
When an asset's fair value falls below its book value, the difference between fair value and book value is recognized as a(n) __________________
impairment loss
an asset that has no physical substance
intangible asset
a long lived asset is assumed to be impaired if its estimated future cash flows are ________ than its book value
less
