Acc311 Chapter 11

Lamar Printing Company determines that a printing press used in its operations has suffered a permanent impairment in value because of technological changes. An entry to record the impairment should not be made if the equipment is still being used. recognize an extraordinary loss for the period. include a credit to the equipment accumulated depreciation account. include a credit to the equipment account.

include a credit to the equipment accumulated depreciation account

Which of the following most accurately reflects the concept of depreciation as used in accounting? The process of allocating the cost of tangible assets to expense in a systematic and rational manner to those periods expected to benefit from the use of the asset. A method of allocating asset cost to an expense account in a manner which closely matches the physical deterioration of the tangible asset involved. An accounting concept that allocates the portion of an asset used up during the year to the contra asset account for the purpose of properly recording the fair market value of tangible assets. The process of charging the decline in value of an economic resource to income in the period in which the benefit occurred.

The process of allocating the cost of intangible assets to expense in a systematic and rational manner to those periods expected to benefit from the use of the asset

Which of the following is true of depreciation accounting? It is not a matter of valuation. It is part of the matching of revenues and expenses. It is the process of cost allocation. All of these answers are correct.

all of these answers are correct

Use of the double-declining balance method results in a decreasing charge to depreciation expense. means salvage value is not deducted in computing the depreciation base. means the book value should not be reduced below salvage value. all of these answers are correct.

all of these are correct

A change in estimate should be handled in current and future periods. be handled in future periods only. be handled retroactively. result in restatement of prior period statements.

be handled in current and future periods

McDonald Company acquired machinery on January 1, 2012 which it depreciated under the straight-line method with an estimated life of fifteen years and no salvage value. On January 1, 2017, McDonald estimated that the remaining life of this machinery was six years with no salvage value. How should this change be accounted for by McDonald? By continuing to depreciate the machinery over the original fifteen year life. As a prior period adjustment. As the cumulative effect of a change in accounting principle in 2017. By setting future annual depreciation equal to one-sixth of the book value on January 1, 2017.

by setting future annual depreciation equal to one-sixth of the book value on January 1 2017

Which of the following is a realistic assumption of the straight-line method of depreciation? The rate of return analysis is enhanced using the straight-line method. Depreciation is a function of time rather than a function of usage. The asset's economic usefulness is the same each year. The repair and maintenance expense is essentially the same each period.

depreciation is a function of time rather than a function of usage

Depletion expense includes tangible equipment costs in the depletion base. excludes intangible development costs from the depletion base. excludes restoration costs from the depletion base. is usually part of cost of goods sold.

is usually part of cost of goods sold

Use of the sum-of-the-years'-digits method results in salvage value being ignored. means the denominator is the years remaining at the beginning of the year. means the book value should not be reduced below salvage value. all of these answers are correct.

means the book value should not be reduced below the salvage value

The major difference between the service life of an asset and its physical life is that service life refers to the time an asset will be used by a company and physical life refers to how long the asset will last. physical life is the life of an asset without consideration of salvage value and service life requires the use of salvage value. service life refers to the length of time an asset is of use to its original owner, while physical life refers to how long the asset will be used by all owners. physical life is always longer than service life.

service life refers to the time an asset will be used by a company and physical life refers to how long the asset will last

Which of the following principles best describes the conceptual rationale for the methods of matching depreciation expense with revenues? Associating cause and effect Systematic and rational allocation Immediate recognition Partial recognition

systematic and rational allocation

The book value of a plant asset is the asset's acquisition cost less the total related depreciation recorded to date. equal to the balance of the related accumulated depreciation account. the fair market value of the asset at a balance sheet date. the assessed value of the asset for property tax purposes.

the asset's acquisition cost less the total related depreciation recorded to date

The term "depreciable base," or "depreciation base," as it is used in accounting, refers to the cost of the asset less the related depreciation recorded to date. the estimated market value of the asset at the end of its useful life. the acquisition cost of the asset. the total amount to be charged (debited) to expense over an asset's useful life.

the total amount to be charged (debited) to expense over an asset's useful life

Usually, companies compute depletion for accounting purposes using a units-of-production method. decreasing charge method. straight-line method. percentage depletion method.

units-of-production

If an industrial firm uses the units-of-production method for computing depreciation on its only plant asset, factory machinery, the credit to accumulated depreciation from period to period during the life of the firm will vary with sales revenue. be constant. vary with unit sales. vary with production.

vary with production