Chapter 6 Practice Quiz

When a depreciable asset is sold:

A gain arises if the sales proceeds exceed the net book value.

Which of the following statements best describes the process of accounting depreciation?

A process for recognizing the cost of an asset that should be matched against revenue earned as a result of using the asset.

Noncurrent, intangible assets such as leasehold improvements, patents, and goodwill are all subject to:

Amortization

Expenditures capitalized as noncurrent assets generally include those expenditures that:

Are material and that have an economic benefit to the entity that extends beyond the current year.

The entry to record depreciation on long-term assets:

Decreases total assets and decreases earnings before taxes.

If you owed $200 at the end of each year for the next three years, the present value of the obligation would be:

Less than it would be if you had to pay $300 today and $300 at the end of this year.

The present value concept is widely applied in business because:

Money has value over time.

Goodwill is an asset that arises because the present value of an acquired company's estimated future earnings, discounted at the acquired at acquiring firm's ROI is:

More than the fair market value of the net assets of the acquired company.

Which depreciation method results in equal depreciation expense amounts for each year of an asset's useful life?

Straight-line

When a firm buys land on which there is a building, and the building is torn down so that an appropriate new building can be constructed on the land:

The total cost of the land and old building are capitalized as land cost.