Chapter 7 - ACTG 2200

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

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

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

recognize a loss of $2,400

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.

In accounting, the term impairment refers to

an asset's significant decline in value.

The original cost of the asset less the accumulated depreciation is the _____________ ___________ of the asset.

Blank 1: book 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: depreciation Blank 2: amortization

The original cost of an asset minus accumulated depreciation is

book value.

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

intangible asset.

The formula for straight-line depreciation is

(cost - residual value)/service life.

Depreciation

- Allocation of the cost of a tangible fixed asset - an allocation of a cost of an 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?

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

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

Which of the following are commonly used depreciation methods?

- Declining-balance - Straight-line - Activity-based

Which of the following are long-term tangible assets?

- Equipment - Property - Buildings - Land

Amortization

Allocation of the cost of an intangible asset

Depletion

Allocation of the cost of natural resources

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.

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

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

capitalized

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

depreciate

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

net income

Straight-line deprecation is calculated as the depreciable cost divided by

the estimated service life of the asset.

___________ 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?

- Repairs and maintenance - Improvements - Additions

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 does not differ among the different depreciation methods?

Total depreciation recognized over the asset's service life.

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

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 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 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

The depreciable cost is

the cost of the asset minus the residual value.

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