chapter 7 smart book

The residual value of an intangible asset is usually

zero

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

retirement

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

In accounting, expenditures recorded as assets are said to be _____.

capitalized

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

capitalized

True or false: Depreciation is a valuation method for property and equipment.

false

True or false: Internally developed goodwill should be capitalized as an asset.

false

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

Which of the following items typically are classified as equipment?

Computers and printers used in office Machinery used in manufacturing

Using the declining balance method, depreciation will be

higher in earlier years, but lower in later years.

Long-term tangible assets include

land, equipment, buildings

Use of MACRS for tax purposes usually results in ____________ income tax in the earlier years of an asset's life.

less

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

the book value at the beginning of the year.

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

the estimated service life of the asset.

A change in accounting estimate requires a company to account for the change

in the current and future years

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

-repairs and maintenance -additions -improvements

Which account is credited in a journal entry to record depreciation on machinery?

Accumulated depreciation

Which of the following are commonly used depreciation methods?

Declining-balance Activity-based Straight-line

MARCS VS. straight-line

Straight-line commonly used for financial statement purposes MACRS commonly used for tax reporting

The depreciation rate we use under the declining-balance method is a multiple of the

Straight-line method

Larry purchases land to be used for a new corporate headquarters. Which of the following items are capitalized in the cost of land?

Title insuranceLegal fees to secure titleCosts to remove an old buildingGrading the land

What are the financial statement effects of using the declining balance method of depreciation as compared to the straight-line method in the first year of an asset's life?

Total assets are lower. Net income is lower.

Depreciation is a process of cost _______- and not a process of valuation

allocation

Allocating the cost of intangible assets to expense is referred to as _____.

amortization

Recording depreciation results in the allocation of the cost of a long-term asset to the years during which the asset provides

benefits

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

The accumulated depreciation account is classified as a(n)

contra asset

Allocation of the cost of natural resources

depletion

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

depreciate

Allocation of the cost of a tangible fixed asset

depreciation

The key factor in classifying items as repairs and maintenance is that

future benefits are not provided beyond those originally anticipated from the asset.

Intangible assets that are acquired from other entities are referred to as purchased intangibles, whereas intangibles that are created by a company are referred to as

internally developed intangibles.

The distinction between land and land improvements is that:

land has an indefinite life

What is the formula for the profit margin ratio?

net income divided by net sales

The declining balance method of depreciation is a multiple of the

straight-line rate of depreciation.

Which of these are parts of the journal entry to record depreciation?

- Debit depreciation expense- credit accumulated depreciation

The cost allocation for property, plant, and equipment is referred to as ________ while the cost allocation for intangible assets is referred to as _______

Depreciation & amortization

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

debit to accumulated depreciation credit to equipment debit to loss

An intangible asset that is measured as the purchase price less the fair value of the net identifiable assets is called

goodwill

When a company acquires a business in a business acquisition and the purchase price is greater than the fair value of the net assets acquired, the excess is reported as

goodwill

The cost of land improvements are capitalized separately from land because land improvements tend to have a_____ useful life.

limited

__________ 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

Total depreciation recorded over an asset's service life is:

the same regardless of the depreciation method used

Blake uses the activity-based depreciation method. Blake purchases equipment for $100,000 and expects to use the equipment for 40,000 machine hours. The machine has a residual value of $20,000. The depreciation rate is

$2.00 Rationale:($100,000 - 20,000)/40,000 machine hours = $2.00 per machine hour.

Where is the account accumulated depreciation on equipment found on the financial statements?

As a contra account to equipment on the balance sheet

Units of production or units of output are alternative terms for the

activity-based depreciation method

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

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

straight-line declining-balance

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

Total depreciation recognized over the asset's service life.

The formula for straight-line depreciation is

(cost - residual value)/service life.

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 formula to calculate an activity-based depreciation rate is:

(cost - residual value)/estimated total production.

Which items are considered changes in estimates that would be treated on a prospective basis in the current period and future periods?

Change in service life of an asset Change in residual value of an asset

Sarah purchases land to be used for a new storage facility. Which of the following items are capitalized in the cost of land?

Commissions Legal fees to secure title Costs to remove an old building

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.

Which of the following costs should be capitalized in the costs of acquiring a building?

Realtor commissions Remodeling building Legal fees to obtain title

Allocation of the cost of an intangible asset

amortization

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 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

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 ______.

goodwill

Amortization refers to the allocation of the cost of _______ assets to expenses

tangible

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.

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

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

units of production methodunits of output method

Clarion purchases land and prepares it for use. Which of the following items should be capitalized as land improvements?

Cost of driveways,Cost of lawn sprinkler system, Cost of sidewalks

The estimated use the company expects to obtain from an asset before disposing of it is referred to as the ______ life of the asset

useful

When we recognize depreciation, we allocate a portion of the asset's cost to each year in which the asset

provides benefits to the company.