Financial accounting Module 5

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

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 recognized 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 BLANK while an activity-based method allocates the cost of an asset based on its BLANK

time use

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

units of production method units of output method

Which of the following are commonly used depreciation methods?

Declining-balance Straight-line Activity-based

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.

Recognizing 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

Match each term with its definition.

Depreciation: Allocation of the cost of a tangible fixed asset Depletion: Allocation of the cost of natural resources Amortization: Allocation of the cost of an intangible asset

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

Intangible

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

Intangible asset

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 are long-term tangible assets?

Property Equipment

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

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

Total depreciation recognized over the asset's service life.

Units of production or units of output are alternative terms for the BLANK BLANK depreciation method.

activity based

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

amortization

For accounting purposes, depreciation is

an allocation of a cost of an asset.

In accounting, the term impairment refers to

an asset's significant decline in value.

The original cost of an asset minus accumulated depreciation is

book value

The original cost of the asset less the accumulated depreciation is the BLANK BLANK of the asset.

book value

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

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

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

capitalized

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

current-year activity or production

The financial statement effects of recognizing depreciation includes a

decrease in assets decrease in net income decrease in stockholders equity

Depreciation has the effect of Blank______ assets and Blank______ stockholders' equity.

decreasing; decreasing

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

depreciate

The allocation of the cost of a tangible asset over its service life is referred to as BLANK

depreciation

The allocation of the cost of a tangible fixed asset is referred to as BLANK whereas the allocation of the cost of an intangible asset is referred to as BLANK

depreciation amortization

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 BLANK assets to expense

intangible

Companies use accelerated depreciation for tax purposes because Multiple choice question.

it reduces taxable income in the early years of the asset's life and provides better cash flows.

Long-term tangible assets include

land. buildings. equipment.

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

lower

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

net income

What is the formula for the profit margin ratio?

net income divided by net sales

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.

BLANK value is the amount the company expects to receive for the asset at the end of its service life. (Enter one word per blank)

residual

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

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 BLANK life of the asset

service

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 depreciation methods allocate the cost of long-term assets based on time? (Select all that apply.)

straight-line declining-balance