Accounting Ch.9 WPQ

What is depreciation?

A cost allocation method

Given the following account balances at year end, how much is amortization expense on Anisha Enterprises income statement for the current year if Anisha thinks all of its intangibles should be amortized over ten years? Sales revenue $45,000,000 Patents 1,500,000 Accounts receivable 4,000,000 Land 15,000,000 Equipment 25,000,000 Copyrights 1,000,000 Goodwill 4,500,000 Research & development 2,000,000

Correct! The intangibles are copyrights, patents and goodwill. Only copyrights and patents are amortized. ($1,000,000 + $1,500,000)/10 = $250,000.

A company purchased a dump truck for $25,000. In addition, freight charges were $500, and an additional payment of $800 was made to paint the company's logo on the truck. The estimated salvage value and useful life are $3,800 and 5 years, respectively. How much is annual depreciation expense under the straight-line method?

Correct! The purchase price includes all costs necessary to get the truck ready to use: $25,000 + $500 + $800 = $26,300. The annual depreciation is calculated as the sum of the purchase price less the salvage value divided by the useful life: ($26,300 - $3,800) / 5 years = $4,500.

Which of the following is not a way to express the useful life of a depreciable asset?

Cost of acquisition

Which of the following methods will result in the highest depreciation in the first year?

Declining-balance.

Which of the following is not a depreciable asset?

Land

Which one of the following is not a depreciable asset?

Land

Which of the following statements is false?

Research and development costs are expensed when incurred, except when the research and development expenditures result in a successful patent.

Which statement is true about additions to plant assets?

They are capitalized

Which one of the following items is not considered a part of the cost of a truck purchased for business use?

Truck license

Which of the following methods of computing depreciation is production based?

Units-of-activity.

The balance in the Accumulated Depreciation account represents the

amount charged to expense since the acquisition of the plant asset.

In computing depreciation, salvage value is

an estimate of a plant asset's value at the end of its useful life.

The cost of land does not include

annual property taxes

The cost of a long-term asset is expensed

as the asset benefits the company.

The book value of an asset is equal to the

asset's cost less accumulated depreciation.

Management should select the depreciation method that

best measures the plant asset's contribution to revenue over its useful life.

When there is a change in estimated depreciation

current and future years' depreciation should be revised.

The declining-balance method of depreciation produces a(n)

decreasing depreciation expense each period.

Recording depreciation each period is necessary in accordance with the

expense recognition principle.

The four subdivisions for plant assets are

land, land improvements, buildings, and equipment.

When an asset is sold, a gain occurs when the

sale price exceeds the book value of the asset sold.

The depreciation method that applies a constant percentage to depreciable cost in calculating depreciation is

straight-line.

Depreciation is the process of allocating the cost of a plant asset over its useful life in a(n)

systematic and rational manner.

A characteristic of a plant asset is that it is

used in the operations of a business.