Accounting Chapter 7

On January 1, Year 1, a company purchases a machine for $18,000. The estimated residual value is $6,000, and the estimated service life is 8 years or 30,000 units. Using the straight-line method, calculate the amount of depreciation for Year 2. $400 $750 $1,500 $2,250

$1,500

The term_____________ means to record an expenditure as an asset.

capitalize

The method that allocates an equal amount of depreciation to each year of an asset's service life is: activity-based. declining balance. double-declining balance. straight-line.

straight-line

Accumulated Depreciation: is an asset and has a normal debit balance is an asset and has a normal credit balance is a contra asset and has a normal debit balance is a contra asset and has a normal credit balance

is a contra asset and has a normal credit balance

Which of the following are expenditures for assets subsequent to acquisition? Multiple select question. -Freight charges -Improvements -Repairs and maintenance -Additions

-Improvements -Repairs and maintenance -Additions

A(n)_________ , Incorrect Unavailable 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

intangible assets

long-term assets (e.g., patents, trademarks, copyrights) that have no real physical form but do have value

The amount a company expects to receive from selling a long-term asset at the end of its service life is known as: accumulated depreciation. book value. depreciable cost. residual value.

residual value.

On January 1, Year 1, a company purchases a machine for $18,000. The estimated residual value is $6,000, and the estimated service life is 8 years or 30,000 units. After three years of use, the company estimates the remaining service life of the machine to be nine years rather than the original eight. Using the straight-line method, calculate the amount of depreciation for Year 4. $1,250 $1,333 $1,500 $2,250

$1,250 = ($18,000 − $6,000)/8 = $1,500. = $1,500 × 3 = $4,500 = $18,000 − $4,500 = $13,500 = ($13,500 − $6,000)/6 = $1,250.

Windsor Hospital purchases $90,000 in surgical equipment on October 1, Year 1. The useful life is estimated to be 5 years, and the residual value is estimated to be $10,000. What will be the depreciation expense reported for this equipment in Year 1 if the hospital uses the straight-line method? $16,000 $8,000 $4,000 $2,667

$4,000 [($90,000 − $10,000)/5] × 3/12.

A company purchases a machine for $10,000. The estimated residual value is $4,000, and the estimated service life is 4 years or 10,000 units. The company uses the straight-line method of depreciation. The depreciable cost of the asset is: $1,000 $1,500 $6,000 $10,000

$6,000

Prime, Inc., purchases $100,000 in construction machinery on January 1, Year 1. The useful life is estimated to be 8 years, and the residual value is estimated to be $20,000. What will be the depreciation rate if the company uses the double-declining-balance method? 25% 40% 20% 12.5%

25% 100,000 x 2/8

Depreciable Cost Total units expected to be produced

Depreciation rate per unit

Cost-Residual Value = Life

Straight Line Depreciation (Annual Depreciation Expense)

The formula for calculating the double-declining-balance method is -historical cost x 1/service life. -book value at beginning of the year less residual value x 2/ estimated service life. -historical cost less residual value x 2/estimated service life. -book value at beginning of year x 2/estimated service life

book value at beginning of year x 2/estimated service life

The distinction between land and land improvements is that: Multiple choice question. -there is no distinction, they are treated the same for accounting purposes -land has a definite life -land is depreciated and land improvements are not -land has an indefinite life

land has an indefinite life

2/ Life

Double Declining Balance Depreciation Rate (DDB)

What to include in the cost of land improvements

Driveways/parking lots, Fances, Landscaping

Beginning Book Value x Depreciation Rate

Annual Depreciation Expense (DDB)

An automobile manufacturer replaces a major component of a machine used in its assembly line. This cost should be expensed in the current period.

False (cost of replacing a major component of an asset is known as an improvement.)

What is not included when calculating the initial cost?

Property Tax

What to include in the cost of buildings

Purchas Costs, Construction costs, building permits, and excavation costs

What to include in the cost of Land

Purchase Price, Closing Cost, Commisions, Back old Property taxes, Clearing/leveling the land, Cost of removing old buildings

What to include in the cost of equipment?

Purchase Price, Sales Tax, Shipping/ Delivery charges, Cost of assembly

Fresh Veggies, Inc. (FVI), purchases land and a warehouse for $490,000. In addition to the purchase price, FVI makes the following expenditures related to the acquisition: broker's commission, $29,000; title insurance, $1,900; and miscellaneous closing costs, $6,000. The warehouse is immediately demolished at a cost of $29,000 in anticipation of building a new warehouse. Determine the amount FVI should record as the cost of the land.

Purchase price of land (and warehouse to be removed) $ 490,000 Broker's commission 29,000 Title insurance 1,900 Closing costs 6,000 Cost of removing the warehouse 29,000 Total cost of the land $ 555,900

Depreciation Expense x Months 12

Straight Line Partial Year Depreciation

When an expenditure is not large enough to influence a decision, it is typically recorded as an expense regardless of its expected period of benefit.

True

In accounting, expenditures recorded as assets are said to be _____. Multiple choice question. -recognized -expensed -accrued -capitalized

capitalized

The journal entry to record annual depreciation for equipment includes a: debit to Accumulated Depreciation debit to Depreciation Expense credit to Equipment credit to Cash

debit to Depreciation Expense

Depreciation is the process of allocating the cost of an asset to a(n) _________ over its service life. contra asset expense liability revenue

expense

When a company purchases another company and the purchase price is greater than the fair value of the net assets acquired, this excess is referred to as ______. Multiple choice question. -identified intangible assets -goodwill -restricted intangible assets -unidentifiable assets

goodwill

An attorney adds an air purification system to his office building. The addition: increases future benefits and should be capitalized. increases future benefits and should be expensed. does not increase future benefits and should be capitalized. does not increase future benefits and should be expensed.

increases future benefits and should be capitalized.

We record goodwill as an intangible asset in the balance sheet only when _____. it is part of an acquisition of another business it is internally generated it is more than 50 percent of assets we make an acquisition at a price below the fair value of net assets

it is part of an acquisition of another business