ACC chap 7

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

intangible

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

Use of MACRS for tax purposes usually results in --- income tax in the earlier years of an asset's life.

lower

What is the formula for the profit margin ratio?

net income divided by net sales

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

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

impairment

amortization

Allocation of the cost of an intangible asset

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

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

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

Total depreciation recognized over the asset's service life.

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

the book value at the beginning of the year

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

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

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

units of output method, units of production method

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

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

false

The depreciable cost is

he cost of the asset minus the residual value.

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 excessive legal right to manufacture a product or to use is called a(n)

patent

A(n) -- is the exclusive right to manufacture a product to use a process granted for a period of -- years.

patent, 20

Which of the following are long-term tangible assets?

property and equipment

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

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

recognize a loss of $2,400

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

repairs and maintenance, improvements, additions

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

residual

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

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

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

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.

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

activity-based

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

additions, repairs an maintenance, improvements

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

advertising costs, research and development costs

depreciation is a process of cost ---, and not process of valuation

allocation

Depreciation

allocation of the cost of a tangible asset

depletion

allocation of the cost of natural resources

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/revenue

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 an asset minus accumulated depreciation is

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 the asset less the accumulated depreciation is the --- ----- of the asset.

book, value

Long-term tangible assets include

buildings, land, equipment

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

capitalized

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

debit to loss, credit to equipment, debit to accumulated depreciation

Which of the following are commonly used depreciation methods?

declining balance, activity based, straight line

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

declining balance, straight line

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

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

intangible

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