acctg-201 - chapter 7

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

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

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

- additions - repairs and maintenance - improvements

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 allocation of the cost of a tangible asset over its service life is referred to as ___. (Enter one word per blank)

deprecation

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

depreciate or depreciation

Match each term with its definition. - depreciation - depletion - amortization

depreciation -> allocation of the cost of a tangible fixed asset depletion -> allocation of the cost of natural resources amortization -> allocation of the cost of an intangible 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.

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 estimated use the company expects to obtain from an asset before disposing of it is referred to as the ___ life of the asset. (Enter one word per blank)

service, useful, or depreiable

When an asset has a significant decline in value and is written down, this is called ___. (Enter one word per blank)

impairment

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

intangible

The term used to describe the amount the company expects to receive fro 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, retire, retires, or retirements

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 equipment $90,000 - credit gain on exchange of asset $30,000 - debit accumulated depreciation $70,000 - debit equipment $45,000

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

- credit to equipment - debit to accumulated depreciation - debit to loss

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

Long-term tangible assets include

- equipment - buildings - land

Which of the following are long-term tangible assets?

- equipment - property

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

- repairs and maintenance - improvements - additions

Which of the following are commonly used depreciation methods?

- straight-line - activity-based - declining-balance

For accounting purposes, depreciation is

an allocation of a cost of an asset.

The original cost of the asset less the accumulated deprecation is the ___ ___ of the asset.

blank 1: book or carrying blank 2: value

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 ___.

blank 1: deprecation blank 2: amortization

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 ___.

blank 1: depreciation blank 2: amortization

The profit margin ratio is defined as ___ ___ divided by net sales. (Enter one word per blank)

blank 1: net blank 2: income or profit

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

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

intangible

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

intangible asset

What is the formula for the profit margin ratio?

net income divided by net sales.

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

recognize a loss of $2,400

___ 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 or salvage