ACCT chap 7 smartbook

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

The formula for calculating declining balance depreciation is the depreciation rate per year times the cost less the residual value. the book value at the beginning of the year. the cost less the residual value less the accumulated depreciation.

the book value at the beginning of the year.

The depreciation method that allocates an equal amount of the depreciable base to each year of the asset's service life is the MACRS double-declining-balance method. straight-line method. units-of-output method.

straight-line method

An exclusive right to display a word, slogan, symbol, or emblem that distinctively identifies a company, product, or service is referred to as a

trademark

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

Other terms used for an activity-based depreciation method are: Multiple select question. units of production method base depreciation method units of output method productivity method

units of production method units of output method

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, useful, or depreciable

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

patent; 20

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. decreases in value. is owned by the company.

provides benefits to the company.

Otto Inc. retires old equipment with a book value of $2,400. Otto should not make a journal entry recognize a gain of $2,400 debit cash for $2,400 recognize a loss of $2,400

recognize a loss of $2,400

Which of the following are long-term tangible assets? Multiple select question. Trademark Copyright Accounts receivable Equipment Property

Equipment Property

The formula for calculating the double-declining-balance method is Multiple choice question. book value at beginning of year x 2/estimated service life historical cost x 1/service life. historical cost less residual value x 2/estimated service life. book value at beginning of the year less residual value x 2/ estimated service life.

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

The accumulated depreciation account is classified as a(n)

contra asset.

A(n) _____ is protected by law and gives the creator of a published work the exclusive rights to reproduce and sell the work for the life of the creator plus 70 years.

copyright

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

false

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

patent

commonly used for financial statement purposes

straight-line

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

A _____ is an exclusive right to display a word, slogan, symbol, or emblem that distinctively identifies a company, product, or service.

trademark

In accounting, expenditures recorded as assets are said to be

capitalized

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

capitalized

Expensed

research and development costs

Long-term tangible assets include Multiple select question. patents. land. goodwill. buildings. equipment.

land. buildings. equipment.

The profit margin ratio is defined as ______ _____ divided by net sales

net income

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

Residual or Salvage

Which of the following are expenditures for assets subsequent to acquisition? Multiple select question. Freight charges Additions Repairs and maintenance Improvements

Additions Repairs and maintenance Improvements

Which of the following items are initially recorded as an expense on the income statement? Multiple select question. Purchased intangibles Advertising costs Research and development costs

Advertising costs Research and development costs

amortization

Allocation of the cost of an intangible asset

Where is the account accumulated depreciation on equipment found on the financial statements? As an expense account on the income statement As a contra account to equipment on the balance sheet As a liability account on the balance sheet As an asset account on the balance sheet

As a contra account to equipment on the balance sheet

Larry purchases land to be used for a new corporate headquarters. Which of the following items are capitalized in the cost of land? Multiple select question. Costs to remove an old building Current year's property taxes Grading the land Legal fees to secure title Title insurance

Costs to remove an old building Grading the land Legal fees to secure title Title insurance

commonly used for tax reporting

MACRS

capitalized

Purchase price plus costs necessary to get asset ready for use

Which of the following are commonly used depreciation methods? Multiple select question. Value-based Straight-line Declining-balance Increasing-balance Activity-based

Straight-line Declining-balance Activity-based

Which of the following does not differ among the different depreciation methods? Depreciation recognized during the last year of the asset's service life. Total depreciation recognized over the asset's service life. Depreciation recognized during the earlier years.

Total depreciation recognized over the asset's service life.

A retirement or abandonment of an asset is different from a sale of an asset because Multiple select question. a loss must be recognized for the remaining book value. no cash is received. a gain is recognized for the undepreciated portion of the equipment. the residual value is included as a gain.

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

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

activity-based

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

allocation

Depreciation

allocation of the cost of a tangible fixed 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: the cost of the asset less the accumulated depreciation the fair value of the asset less the accumulated depreciation consideration received less the fair value of the asset sold amount received less the book value of asset sold

amount received less the book value of asset sold

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

benefits/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 original cost of an asset minus accumulated depreciation is

book value

The original cost of the asset less the accumulated depreciation is the ______ _____ of the asset

book value

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

current-year activity or production

The journal entry to retire old equipment that is not fully depreciated includes a: Multiple select question. debit to loss debit to accumulated depreciation credit to equipment debit to cash credit to loss

debit to loss debit to accumulated depreciation credit to equipment

Which depreciation methods allocate the cost of long-term assets based on time? Multiple select question. declining-balance activity methods straight-line

declining-balance straight-line

Which depreciation methods allocate the cost of long-term assets based on time? Multiple select question. valuation method declining-balance activity methods straight-line

declining-balance straight-line

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

depreciate

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 depreciable cost is Multiple choice question. cost of the asset minus depreciation expense. historical cost less accumulated depreciation. the cost of the asset minus the residual value. cost of the asset plus the residual value.

the cost of the asset minus the residual value.

Straight-line deprecation is calculated as the depreciable cost divided by the cost of the asset. the estimated service life of the asset. the residual value of the asset.

the estimated service life of the asset

Total depreciation recorded over an asset's service life is: the same regardless of the depreciation method used lowest when the straight-line method is used highest when the double-declining balance method is used lowest when the activity-based method is used

the same regardless of the depreciation method used

On January 1, 2021, Pritchett Corporation purchased equipment for $50,000. The equipment had a five-year life with a $10,000 residual value. Pritchett uses the straight-line depreciation method. What is the book value of the equipment on January 1, 2024? Multiple choice question.

$26,000 Depreciation expense is ($50,000 - 10,000)/5 = $8,000 per year. $50,000 less accumulated depreciation of $24,000 = $26,000.

On January 1, 2021, Lennox Corporation purchased equipment for $100,000. Lennox depreciated the equipment straight--line over 10 years with no residual value. What is the book value of the equipment on January 1, 2024? $70,000 $60,000 $50,000 $100,000

$70,000 $100,000/10 years = $10,000 depreciation per year. Historical cost of $100,000 less $30,000 depreciation (for 2021, 2022, and 2023) = $70,000.

The formula to calculate an activity-based depreciation rate is: cost/estimated total production. cost/actual production during the year. (cost - residual value)/actual production during the year. (cost - residual value)/estimated total production.

(cost - residual value)/estimated total production.

The formula for straight-line depreciation is

(cost - residual value)/service life.

Which account is credited in a journal entry to record depreciation on machinery? Cash Depreciation Expense Machinery Accumulated Depreciation

Accumulated Depreciation Depreciation is recorded with a debit to Depreciation Expense (+E, -SE) and a credit to Accumulated Depreciation (-A).

Sarah purchases land to be used for a new storage facility. Which of the following items are capitalized in the cost of land? Multiple select question. Commissions Costs to remove an old building Current year's property taxes Legal fees to secure title

Commissions Costs to remove an old building Legal fees to secure title

Which of these are parts of the journal entry to record depreciation? Multiple select question. Debit Accumulated Depreciation Debit Depreciation Expense Credit Depreciation Expense Credit Accumulated Depreciation

Debit Depreciation Expense Credit Accumulated Depreciation

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? Multiple select question. Debit equipment $35,000 Credit accumulated depreciation $40,000 Debit equipment $40,000 Credit equipment $90,000 Debit loss on exchange $10,000 Debit loss on equipment $15,000 Debit accumulated depreciation $40,000

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

For accounting purposes, depreciation is an allocation of a cost of an asset. a decline in value of an asset. the selling price of an asset.

an allocation of a cost of an asset.

The allocation of the cost of a tangible asset over its service life is referred to as _____

depreciation

The types of expenditures that can occur subsequent to an asset's acquisition are Multiple select question. improvements. goodwill. repairs and maintenance. additions.

improvements. repairs and maintenance. additions.

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

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. it does a better job of matching expenses to revenues of the period. it is required by the IRS.

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

The term ____ means to record an expenditure as an asset.

capitalize

The service life or useful life of an asset is determined by MACRS tables. the estimated use that the company expects to obtain from the asset before disposing of it the time period from the purchase of the asset until it becomes impaired.

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

Which statement is true about the straight-line method of depreciation? Multiple choice question. It allocates an equal amount of depreciation to each year the asset is used. It is the preferred method for companies expecting to use the asset more in its early years of life. It is an accelerated method of depreciation. It recognizes expense proportionately with the amount of use of the asset.

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

Other terms used for an activity-based depreciation method are: Multiple select question. units of output method productivity method base depreciation method units of production method

units of output method units of production method

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? Multiple select question. Debit equipment $50,000 Debit equipment $32,000 Debit accumulated depreciation $40,000 Credit equipment $120,000 Credit accumulated depreciation $40,000 Debit loss on exchange $30,000

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