Chapter 7- Long Term Assets

Otto Inc. retires old equipment with a book value of $2,400. Otto should

recognize a loss of $2,400

The journal entry to retire old equipment that is not fully depreciated includes a:

debit to accumulated depreciation credit to equipment debit to loss

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 original cost of the asset less the accumulated depreciation is the

Book Value

The original cost of an asset minus accumulated depreciation is

book value

Depreciation

Allocation of the cost of a tangible fixed asset

Amortization

Allocation of the cost of an intangible asset

Depletion

Allocation of the cost of natural resources

The allocation of the cost of an intangible asset is referred to as

Amortization

The purchase price and all costs to bring an asset to its desired condition and location for use should be ______.

Capitalized

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

Which of the following are commonly used depreciation methods?

Declining-balance Activity-based Straight-line

Straight-line, declining-balance, and activity-based refer to methods commonly used to

Depreciate property, plant, and equipment.

The allocation of the cost of a tangible fixed asset is referred to as

Depreciation

Long-term tangible assets include

Equipment, Land, Buildinngs

An asset that has no physical substance is called

Intangible Asset

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

useful life

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

Residual

The term used to describe the amount the company expects to receive for an asset at the end of its service life is

Residual Value

Wall Corporation exchanges old equipment for new equipment. The original cost of the old equipment was $100,000, and its accumulated depreciation at the date of exchange was $60,000. The new asset received had a fair value of $80,000 and a book value of $65,000. The journal entry to record this exchange will include which of the following entries?

Credit equipment $100,000 Debit equipment $80,000 Debit accumulated depreciation $60,000 Credit gain on exchange of asset $40,000

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?

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

Which statement is true about the straight-line method of depreciation?

It allocates an equal amount of depreciation to each year the asset is used.

Which of the following are long-term tangible assets?

Property and Equipment

The depreciation method that allocates an equal amount of the depreciable base to each year of the asset's service life is the

Straight-Line Method

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 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

When an asset is no longer useful, but cannot be sold, it is called an asset

retirement

The depreciable cost is

the cost of the asset minus the residual value.

The service life or useful life of an asset is

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

Cheng 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 $40,000. The new equipment received had a fair value of $40,000 and a book value of $35,000. The journal entry to record this exchange will include which of the following entries?

Credit equipment $90,000 Debit equipment $40,000 Debit loss on exchange $10,000 Debit accumulated depreciation $40,000