ACC 210 Chapter 7 SmartBook

Which of the following does not differ among the different depreciation methods?

Total depreciation recognized over the asset's service life.

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

recognize a loss of $2,400

The types of expenditures that can occur subsequent to an asset's acquisition are

repairs and maintenance. improvements. additions.

The depreciable cost of an asset is the asset's cost minus its estimated ______ value

residual

Long-lived assets are typically classified in two categories:

Tangible Intangible

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

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 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 depreciable cost of an asset is the asset's cost minus its estimated _________ value

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.

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

retirement

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

Other terms used for an activity-based depreciation method are:

units of production method units of output method

The formula to calculate an activity-based depreciation rate is:

(cost - residual value)/estimated total production.

The formula for straight-line depreciation is

(cost - residual value)/service life.

Units of production or units of output are alternative terms for the _______ _________ depreciation method

activity-based

Long-term assets are classified as

tangible. intangible.

An asset that has no physical substance is referred to as a(n)

intangible asset.

Companies use accelerated depreciation for tax purposes because

it reduces taxable income in the early years of the asset's life and provides better cash flows.

The profit margin ratio is defined as ________ _________ divided by net sales.

net income

A retirement or abandonment of an asset is different from a sale of an asset because

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

The exclusive legal right to manufacture a product or to use a process is called a(n)

patent

Which depreciation methods allocate the cost of long-term assets based on time?

straight-line declining-balance

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.

______ value is the amount the company expects to receive for the asset at the end of its service life. (Enter one word per blank)

Residual

Which of the following are commonly used depreciation methods?

Straight-line Declining-balance Activity-based

Which of the following are expenditures for assets subsequent to acquisition?

Additions Repairs and maintenance Improvements

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?

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

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 loss on exchange $30,000 Debit equipment $32,000 Credit equipment $120,000 Debit accumulated depreciation $40,000 Debit equipment $50,000 Credit accumulated depreciation $40,000

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

True or false: Depreciation is a valuation method for property and equipment.

False

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.

What is the formula for the profit margin ratio?

Net income divided by net sales.

A(n) ________ is the exclusive right to manufacture a product or use a process granted for a period of _______ years

Patent; 20

Which of the following items are initially recorded as an expense on the income statement?

Research and development costs Advertising costs

Depreciation is a process of cost ____ , and not a process of valuation.

allocation

Allocating the cost of intangible assets to expense is referred to as

amortization

The gain or loss on disposal of an asset is calculated as:

amount received less the book value of asset sold

For accounting purposes, depreciation is

an allocation of a cost of an asset.

In accounting, the term impairment refers to

an asset's significant decline in value.

Recording depreciation results in the allocation of the cost of a long-term asset to the years during which the asset provides

benefits

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 _________ ______________ of the asset.

book value

The formula for calculating the double-declining-balance method is

book value at beginning of year x 2/estimated service life

The original cost of an asset minus accumulated depreciation is

book value.

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

capitalized

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

credit to equipment debit to accumulated depreciation debit to loss

The formula to calculate the depreciation for the units-of-production method or activity-based depreciation, is ((cost - residual value)/total estimated production) x ______.

current-year activity or production

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

depreciate

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

impairment

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

intangible

An asset that has no physical substance is called a(n) ___ asset

intangible

The formula for calculating declining balance depreciation is the depreciation rate per year times

the book value at the beginning of the year.

The depreciable cost is

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 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.

Total depreciation recorded over an asset's service life is:

the same regardless of the depreciation method used

Straight-line and declining balance methods allocate the cost of a long-term asset based on ____ , while an activity-based method allocates the cost of an asset based on its ____

time; use