Chapter 7

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 allocation of the cost of a tangible fixed asset is referred to as (blank), whereas the allocation of the cost of an intangible asset is referred to as (blank).

Depreciation amortization

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.

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

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

intangible asset.

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

lower

The depreciable cost is

the cost of the asset minus the residual value.

Amortization refers to the allocation of the cost of (blank) assets to expense.

intangible

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

Long-term tangible assets include

buildings. equipment. land.

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

amount received less the book value of asset sold

Depreciation is a process of cost (blank), and not a process of valuation.

allocation

Which account is credited in a journal entry to record depreciation on machinery?

Accumulated Depreciation

The term (blank) means to record an expenditure as an asset.

Capitalize

Which of the following are commonly used depreciation methods?

Declining-balance Straight-line Activity-based

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.

Which of these are parts of the journal entry to record depreciation?

Debit Depreciation Expense Credit Accumulated Depreciation

Allocating the cost of intangible assets to expense is referred to as (blank)

amortization

For accounting purposes, depreciation is

an allocation of a cost of an asset.

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

Intagible

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.

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

Patent

Expensed

Research and development costs

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

Total depreciation recognized over the asset's service life.

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______.

current-year activity or production

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

declining-balance straight-line

The profit margin ratio is defined as (blank) (blank) divided by net sales.

net income

The depreciable cost of an asset is the asset's cost minus its estimated (blank)

residual

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.

provides benefits to the company.

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 (blank), while an activity-based method allocates the cost of an asset based on its (blank)

time use

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.

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

Where is the account accumulated depreciation on equipment found on the financial statements?

As a contra account to equipment on the balance sheet

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

Benefits

In accounting, expenditures recorded as assets are said to be Blank______.

Capitalized

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

Capitalized

The accumulated depreciation account is classified as a(n)

Contra Asset

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?

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

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

Depreciation

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

False

Which of the following are long-term tangible assets?

Property Equipment

Capitalized

Purchase price plus costs necessary to get asset ready for use

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

Repairs and maintenance Additions Improvements

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

Research and development costs Advertising costs

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

Residal

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

Trademark

Units of production or units of output are alternative terms for the (blank)-(blank) depreciation method.

activity based

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

additions. improvements. repairs and maintenance.

When selling a fixed asset, the seller recognizes a gain or loss for the difference between the amount received and the Blank______ value of the asset sold.

book

The original cost of the asset less the accumulated depreciation is the (blank) (blank) of the asset.

book value

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

debit to accumulated depreciation debit to loss credit to equipment

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

depreciate

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

recognize a loss of $2,400

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 (blank) 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 (blank) the life of the asset. (Enter one word per blank)

service

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

units of output method units of production method

A(n) (blank) 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

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

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

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