Chapter 7 SmartBook
The allocation of the cost of a tangible asset over its service life is referred to as __________.
depreciation
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
An asset that has no physical substance is referred to as a(n)
intangible asset.
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 purchase price and all costs to bring an asset to its desired condition and location for use should be ______.
capitalized
The formula for straight-line depreciation is
(cost - residual value)/service life.
Which of the following are expenditures for assets subsequent to acquisition?
Additions Repairs and maintenance Improvements
Wall Corporation exchanges old equipment for new equipment. The original cost of the old equipment was $100,000, and its accumulated depreciation at the date of exchange was $60,000. The new asset received had a fair value of $80,000 and a book value of $65,000. The journal entry to record this exchange will include which of the following entries?
Credit gain on exchange of asset $40,000 Credit equipment $100,000 Debit equipment $80,000 Debit accumulated depreciation $60,000
Which of the following are commonly used depreciation methods?
Declining-balance Activity-based Straight-line
Which of the following are long-term tangible assets?
Equipment Property
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.
__________ value is the amount the company expects to receive for the asset at the end of its service life.
Residual
Which of the following does not differ among the different depreciation methods?
Total depreciation recognized over the asset's service life.
The types of expenditures that can occur subsequent to an asset's acquisition are
additions. repairs and maintenance. improvements.
Allocating the cost of intangible assets to expense is referred to as __________.
amortization
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 __________ __________ of the asset.
book value
The original cost of an asset minus accumulated depreciation is
book value.
Long-term tangible assets include
land. buildings. equipment.
The profit margin ratio is defined as _________ _________ divided by net sales.
net income
Otto Inc. retires old equipment with a book value of $2,400. Otto should
recognize a loss of $2,400
The depreciable cost of an asset is the asset's cost minus its estimated _________ value.
residual
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
The depreciable cost is
the cost of the asset minus the residual value.
Straight-line deprecation is calculated as the depreciable cost divided by
the estimated service life of the 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.
Total depreciation recorded over an asset's service life is:
the same regardless of the depreciation method used
Match each term with its definition.
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 term used to describe the amount the company expects to receive for an asset at the end of its service life is
residual value.
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 Debit accumulated depreciation $70,000 Credit equipment $90,000 Credit gain on exchange of asset $30,000
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 Reason: All costs should be capitalized to bring the asset to its intended and useful state.
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.
The gain or loss on disposal of an asset is calculated as:
amount received less the book value of asset sold
For accounting purposes, depreciation is
an allocation of a cost of an asset.
The journal entry to retire old equipment that is not fully depreciated includes a:
debit to accumulated depreciation credit to equipment debit to loss
Straight-line, declining-balance, and activity-based refer to methods commonly used to __________ property, plant, and equipment.
depreciate
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
