Accounting Chapter 7

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

Total depreciation recognized over the asset's service life.

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

The gain or loss on disposal of an asset is calculated as:

amount received less the book value of asset sold

Long-term tangible assets include

equipment. buildings. land.

When an asset has a significant decline in value and is written down, this is called

impairment

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

intangible asset.

The profit margin ratio is defined as ___ ___ divided by net sales

net income

Otto Inc. retires old equipment with a book value of $2,400. Otto should

recognize a loss of $2,400

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

Which of the following are long-term tangible assets?

Equipment Property

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.

Which of the following are commonly used depreciation methods?

Activity-based Straight-line Declining-balance

Depreciation

Allocation of the cost of a tangible fixed asset

Amortization

Allocation of the cost of an intangible asset

depletion

Allocation of the cost of natural resources

Cheng Corporation exchanges old equipment for new equipment. The original cost of the old equipment was $90,000, and its accumulated depreciation at the date of exchange was $40,000. The new equipment received had a fair value of $40,000 and a book value of $35,000. The journal entry to record this exchange will include which of the following entries?

Credit equipment $90,000 Debit loss on exchange $10,000 Debit equipment $40,000 Debit accumulated depreciation $40,000

Pearce Corporation exchanges old equipment for new equipment. The original cost of the old equipment was $120,000, and its accumulated depreciation at the date of exchange was $40,000. The new equipment received had a fair value of $50,000 and a book value of $32,000. The journal entry to record this exchange will include which of the following entries?

Debit accumulated depreciation $40,000 Debit equipment $50,000 Debit loss on exchange $30,000 Credit equipment $120,000

Wall Corporation exchanges old equipment for new equipment. The original cost of the old equipment was $100,000, and its accumulated depreciation at the date of exchange was $60,000. The new asset received had a fair value of $80,000 and a book value of $65,000. The journal entry to record this exchange will include which of the following entries?

Debit accumulated depreciation $60,000 Credit gain on exchange of asset $40,000 Credit equipment $100,000 Debit equipment $80,000

Which of the following are expenditures for assets subsequent to acquisition?

Improvements Repairs and maintenance Additions

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.

What is the formula for the profit margin ratio?

Net income divided by net sales.

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.

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

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 original cost of an asset minus accumulated depreciation is

book value.

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

capitalized

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

credit to equipment debit to accumulated depreciation debit to loss

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

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

declining-balance straight-line

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

depreciate

different types of expenditures

repairs and maintenance, additions, improvements, litigation costs

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

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

resudial

an asset ____ occurs when an asset is no longer useful, but cannot be sold.

retirement

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.

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 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 recorded over an asset's service life is:

the same regardless of the depreciation method used

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

units of production method units of output method


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