chapter 11 (depreciation) accy 303

A principal objection to the straight-line method of depreciation is that it

ignores variations in the rate of asset use

major objective of MACRS

help companies achieve a faster write off of their capital assets

book value of a plant asset it

the asset's acquisition cost less total related depreciation recorded to date

The computation of depreciation under MACRS differs from the GAAP computation except for

the determination of asset cost.

double declining balance method

- results in a decreasing charge to depreciation expense - means salvage value is not deducted in calculating depreciable base - means book value should not be reduced below salvage value

Which of following is not a similarity in the accounting treatment for depreciation and depletion?

Both depreciation and depletion are based on time.

McDonald Company acquired machinery on January 1, 2012 which it depreciated under the straight-line method with an estimated life of fifteen years and no salvage value. On January 1, 2017, McDonald estimated that the remaining life of this machinery was six years with no salvage value. How should this change be accounted for by McDonald?

By setting future annual depreciation equal to one-sixth of the book value on January 1, 2017

If Labor, Inc. uses the composite method and its composite rate is 7.5% per year, what entry should it make when plant assets that originally cost $120,000 and have been used for 10 years are sold for $36,000?

Cash 36,000 Accumulated Depreciation - Plant Assets 84,000 Plant Assets 120,000

Norton, Inc. purchased equipment in 2016 at a cost of $900,000. Two years later it became apparent to Norton, Inc. that this equipment had suffered an impairment of value. In early 2018, the book value of the asset is $585,000 and it is estimated that the fair value is now only $360,000. The entry to record the impairment is

Loss on Impairment of Equipment........................................ 225,000 Accumulated Depreciation—Equipment............. 225,000

Of the following costs related to the development of natural resources, which one is not a part of depletion cost?

Tangible equipment costs associated with machinery used to extract the natural resource

Composite or group depreciation is a depreciation system whereby

a straight line method is computed by dividing the total of the annual depreciation expense for all assets in the group by the total cost of the assets

activity method of depreciation is

a variable change approach

Worley Truck Rental uses the group depreciation method for its fleet of trucks. When it retires one of its trucks and receives cash from a salvage company, the carrying value of property, plant, and equipment will be decreased by the

cash proceeds received

In 2010, Jarrett Company purchased a tract of land as a possible future plant site. In January, 2018, valuable sulphur deposits were discovered on adjoining property and Jarrett Company immediately began explorations on its property. In December, 2018, after incurring $480,000 in exploration costs, which were accumulated in an expense account, Jarrett discovered sulphur deposits appraised at $2,700,000 more than the value of the land. To record the discovery of the deposits, Jarrett should

debit 480,000 to an asset account

realistic assumption of straight line method

depreciation is a function of time, not usage

lamar Printing Company determines that a printing press used in its operations has suffered a permanent impairment in value because of technological changes. An entry to record the impairment should

include a credit to the equipment accumulated depreciation account.

depletion expense

is usually part of cost of goods sold

for the composite method, the composite

life is the total depreciable cost divided by the total annual depreciation.

sum of the years digits method

means book value should not be reduced below salvage value

Which of the following disclosures is not required in the financial statements regarding depreciation?

method of depreciation

rate of return on total assets (ROA)

net income/ average total assets

asset turnover

net sales/ average total assets

economic factors that shorten the service life of an asset

obsolescence, supersession, inadequacy

Reserve recognition accounting

requires estimates of future production costs, the appropriate discount rate, and the expected selling price of oil and gas reserves

Under MACRS, which one of the following is not considered in determining depreciation for tax purposes?

salvage value

service life vs. physical life

service life: how long the asset is useful to the company physical life: how long the asset will last

A general description of the depreciation methods applicable to major classes of depreciable assets

should be included in corporate financial statements or the notes

The most common method of recording depletion for accounting purposes is the

units of production

for I/S, depreciation is a variable expense if _________ method is used

units of production

If an industrial firm uses the units-of-production method for computing depreciation on its only plant asset, factory machinery, the credit to accumulated depreciation from period to period during the life of the firm will

vary with units produced

physical factors of depreciation

wear and tear, casualties, decay