Ch. 7 Long term assets

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 formula to calculate the depreciation for the units-of-production method or activity-based depreciation, is ((cost - residual value)/total estimated production) x ______.

current-year activity or production

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

intangible

The formula to calculate an activity-based depreciation rate is:

(cost - residual value)/estimated total production.

The formula for straight-line depreciation is

(cost-residual value)/service life

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

Which of the following are commonly used depreciation methods?

Activity-based Declining-balance Straight-line

An asset ______ occurs when an asset is no longer useful, but cannot be sold.

retires

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 original cost of an asset minus accumulated depreciation is

book value

The original cost of the asset less the accumulated depreciation is the ______ _______ of the asset.

book value

The formula for calculating the double-declining-balance method is

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

When an asset has a significant decline in value and is written down, this is called _______.

impairment

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

intangible

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

intangible asset

The formula for calculating declining balance depreciation is the depreciation rate per year times

the book value at the beginning of the year.

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

Straight-line and declining balance methods allocate the cost of a long-term asset based on ________, while an activity-based method allocates the cost of an asset based on its _______.

time; use

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

Other terms used for an activity-based depreciation method are:

units of output method units of production method

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

capitalized

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

additions. repairs and maintenance. improvements.

In accounting, the term impairment refers to

an asset's significant decline in value.

Which of the following are long-term tangible assets?

Property Equipment

Amortization

Allocation of the cost of an intangible asset

depletion

Allocation of the cost of natural resources

Long-term tangible assets include

buildings, land, equipment

Depreciation

Allocation of the cost of a tangible fixed asset

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 equipment $100,000 Debit equipment $80,000 Debit accumulated depreciation $60,000 Credit gain on exchange of asset $40,000

Pearce Corporation exchanges old equipment for new equipment. The original cost of the old equipment was $120,000, and its accumulated depreciation at the date of exchange was $40,000. The new equipment received had a fair value of $50,000 and a book value of $32,000. The journal entry to record this exchange will include which of the following entries?

Debit accumulated depreciation $40,000 Debit loss on exchange $30,000 Credit equipment $120,000 Debit equipment $50,000

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

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

Repairs and maintenance Improvements Additions

Which of the following does not differ among the different depreciation methods?

Total depreciation recognized over the asset's service life.

For accounting purposes, depreciation is

an allocation of a cost of an asset.

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.

Units of production or units of output are alternative terms for the ________ - _______ depreciation method.

activity-based

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

debit to accumulated depreciation debit to loss credit to equipment

Which depreciation methods allocate the cost of long-term assets based on time?

declining-balance straight-line

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

depreciate

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

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

net income

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

The depreciable cost of an asset is the asset's cost minus its estimated _______ value.

residual

________ value is the amount the company expects to receive for the asset at the end of its service life.

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.

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