Chapter 9

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What is the amount of depreciation, using the double-declining-balance method for the second year of use for equipment costing $9,000, with an estimated residual value of $600 and an estimated life of three years? Answer $6,000 $3,000 $2,000 $400

$2,000

Straight Line deprecation

Annual deprecation = (Cost-Residual Value)/ Useful Life

Initial cost of a fixed asset

Initial cost of a fixed asset includes all amounts spent to get asset in place and ready for use (freight cost, installment)

Which of the following is not true in regard to selling fixed assets? a. Accumulated Depreciation will be credited. b. The journal entry is similar to discarding fixed assets. c. The cash receipt is recorded. d. If the selling price is more than the book value, a gain is recorded.

a. Accumulated Depreciation will be credited.

The expensing of intangible assets is called a. amortization. b. depreciation. c. depletion. d. replenishing

a. amortization.

Which of the following is not classified as an intangible asset? a. Goodwill b. Trademark c. Investment d. Patent

c. Investment

Equipment purchased on January 3 for $80,000 was depreciated using the straight-line method based upon a five-year life and $7,500 residual value. The equipment was sold three years later on December 31 for $40,000. What is the gain on the sale of the equipment? Answer $3,500 $14,500 $36,500 $43,500

$3,500

3 factors of determining depreciation

(1) the fixed asset's initial cost, (2) the useful life of the asset (3) the residual value of the asset.

Units of Activity Method

1) Deprecation per unit= (Cost - residual value) / Total Estimated units of activity 2) Depreciation expense= Depreciation per unit x units of activity per period

Double Declining Balance Method

1) Determine straight line Percentage (Annual deprecation = (Cost-Residual Value)/ Useful Life) 2) Determine double declining by multiplying straight line x2 3) Compute the depreciation expense by multiplying double decline x book value

Which of the following is an example of an intangible asset? Answer Patents Goodwill Copyrights All of these

All of these

Which of the following expenditures incurred in connection with acquiring machinery is a proper charge to the asset account? Freight Installation costs Both A and B Neither A nor B

Both A and B

Intangible assets

Long-term assets that are used in the operations of the business, but do not exist physically, are called intangible assets. patents copyright trademarks

All of the following are considered fixed assets except a. copyrights. b. land. c. building. d. land improvements.

a. copyrights.

The calculation of depletion expense is a. Quantity Extracted × Estimated Useful Life. b. Depletion Rate × Quantity Extracted. c. Depletion Rate × Estimated Useful Life. d. None of these choices are correct.

b. Depletion Rate × Quantity Extracted.

Which of the following statements is true regarding goodwill? a. Goodwill is amortized based on a 10-year period. b. In a purchase of a business at a price in excess of the fair value of its net assets, goodwill is recorded as the excess. c. Goodwill is the exclusive use of a name, term, or symbol used to identify a business or its product. d. Goodwill is amortized based on the lesser of the useful life or the legal life.

b. In a purchase of a business at a price in excess of the fair value of its net assets, goodwill is recorded as the excess.

Which of the following fixed assets is not depreciated? a. Building b. Land c. Equipment d. None of these choices are correct.

b. Land

Which of the following is not one of the most common depreciation methods? a. Double-declining-balance method b. Sum-of-the-years-digits method c. Units-of-activity method d. Straight-line method

b. Sum-of-the-years-digits method

When a fixed asset is sold, the ____________ is removed, and the cash or other asset received is recorded.

book value price higher than book value is gain, if not then a loss

Which of the following will be classified as a fixed asset for a movie theater? a. Land for sale b. Trademark c. A popcorn machine d. The latest movie

c. A popcorn machine

ll except which of the following will be included in the cost of a fixed asset? a. Freight costs b. Cost of installing equipment c. Mistakes in installation d. Direct costs of new construction

c. Mistakes in installation

All of the following assets will be included as intangible assets on the balance sheet except a. copyrights. b. goodwill. c. buildings. d. patents.

c. buildings.

The expensing of a natural resource is called a. depreciation. b. amortization. c. depletion. d. replenishing.

c. depletion.

Intangible assets are reported on the balance sheet a. before the current assets. b. before property, plant, and equipment. c. immediately after the property, plant, and equipment. d. immediately after the current assets.

c. immediately after the property, plant, and equipment.

All of the following are factors used in determining depreciation expense with the straight-line method except a. the asset's expected useful life. b. the asset's estimated residual value. c. the asset's initial cost. d. None of these choices are correct.

d. None of these choices are correct.

The journal entry to record depletion includes a a. debit to Accumulated Depletion. b. credit to Depletion Expense. c. credit to Accumulated Depreciation. d. debit to Depletion Expense.

d. debit to Depletion Expense.

When discarding a fixed asset any _____________ for the current period is recorded, and the _________ of the asset is then removed from the accounts.

depreciation book value

The cost of patents and copyrights should be amortized over the years of the asset's expected usefulness by debiting an ___________ and crediting the ______________.

expense account intangible asset account

Capital expenditures

include asset improvements and extraordinary repairs.

Revenue expenditures

include ordinary repairs and maintenance.

Fixed asset

long term used day to day not offered for normal part of sales Examples: plant property or equipment

3 methods to calculate depreciation

straight line units of activity double declining balance

Depreciation may be revised into the future for changes in an asset's useful life or residual value.

true


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