Accounting Unit 3 Pre-Quizzes

On the balance sheet, the cumulative amount of plant and equipment already expensed is reported in an account called...

accumulated depreciation.

Depreciation has an effect on the company's income taxes.

True

If a company uses the same depreciation method as other firms in the same industry, investors will have enhanced comparability of the financial reporting results.

True

The effect of recording depreciation for the year is a...

decrease in assets and a decrease in net income.

Which statement is true concerning operating assets? a. Operating assets are used over two or more periods to generate revenues. b. Operating assets have no physical properties. c. A company's operating assets are important to its short-term liquidity. d. All operating assets are reported on the income statement.

operating assets are used over two or more periods to generate revenues.

A constant rate of decline in a fixed asset's service potential is the underlying assumption of the:

straight-line depreciation method.

Depreciation is a process by which...

the cost of plant and equipment is allocated to expense over the time periods that benefit from the use of the asset.

Which of the following sets of factors is needed to calculate depreciation on plant and equipment? a. the asset's replacement cost, its estimated life, and its estimated residual value. b. the asset's acquisition cost, its replacement cost, and its estimated residual value. c. the estimated residual value of the asset, its replacement cost, and its market value. d. the estimated life of the asset, its acquisition cost, and its estimated residual value.

the estimated life of the asset, its acquisition cost, and its estimated residual value.

Falling Leaves Lawn Care This company purchased new excavating equipment at the beginning of 2021. The equipment has a cost of $37,000, an estimated life of 5 years, and an estimated residual value of $7,000. A full year's depreciation expense is to be recorded in 2021. The equipment was used for 20,000 hours during 2021 and 24,000 hours during 2022. The number of expected hours over 5 years is 100,000. By what amount would the total double-declining-balance depreciation exceed the total straight-line depreciation over the 5-year life of the equipment?

total depreciation expenses under double-declining-balance and straight-line depreciation are equal.

Costs incurred to keep plant assets in normal operating condition are called revenue expenditures.

True

Company A has equipment that costs $5,250,000 and has accumulated depreciation of $500,000, while Company B has equipment that costs $4,600,000 and has accumulated depreciation of $4,400,000. Assuming both companies use straight-line depreciation and estimated useful lives of 40 years with $100,000 residual values, which of the following statements is true? a. Both companies have similarly aged equipment. b. Company A's equipment is newer than Company B's. c. Company B's equipment has a higher book value than Company A's. d. Both companies have the same annual depreciation expense.

Company A's equipment is newer than Company B's

When plant assets are reported, the current period's depreciation expense is shown as a deduction from the original cost on the balance sheet.

False