Accounting concepts chapter 11

Which of the following is true regarding a company's choice of depreciation method?

An accelerated method lowers taxes in the early years of an asset's life

Time-Based Depreciation Methods

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

Straight-line depreciation is calculated as the depreciable base divided by

The estimated useful life of the asset

The cost of a natural resource less its anticipated residual value is called the

depletion base

The total amount of cost to be allocated over an asset's service life is called its allocation____

depreciation expense

The formula to calculate the depletion rate of a natural resource is the depletion base divided by the

estimated extractable amount of natural resource

Declining balance depreciation methods multiply ______ by an annual rate that is a multiple of the straight-line rate

cost less accumulated depreciation

The journal entry to record the allocation of the cost of a natural resource will include a

credit to the natural resource

On December 30, 20X1, Rocket Corp disposed of equipment with a historical cost of $100,000 and accumulated depreciation of $70,000. The equipment was sold for $80,000 cash. The journal entry to record the sale will include which of the following entries

debit accumulated depreciation $70,000 debit cash $80,000 credit gain on sale of equipment $50,000 credit to equipment $100,000

The journal entry to record depreciation expense includes

debit to depreciation expense credit to accumulated depreciation

If equipment used in excavation of natural resources is not movable from site to site, it should be

depreciated over the shorter of its useful life or the life of the natural resource

The portion of a tangible asset's cost that is recognized as an expense in the current year is called

depreciation expense

Although activity-based depreciation methods are theoretically superior to the time-based methods, activity-based methods are

difficult to apply in practice too costly to use

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

For assets using the group or composite method of depreciation, the assets will be depreciated over

the average service life of assets in the group

The formula for sum-of-the-years' digit method is the depreciable base times the depreciation rate, which is calculated as

the number of years remaining in the assets life divided by the sum of the years digits

When group depreciation is used, and an asset is sold, which of the following occurs?

No gain or loss is recorded The assets cost is removed from the books

Which of the following terms is equivalent to an asset's useful life to a particular company?

service life

The amount of use that a company expects to obtain from an asset before disposing of it is referred to as the _____ life of the asset

service, useful, or depreciable

Depreciation

Allocation of the cost of a tangible fixed asset

Amortization

Allocation of the cost of an intangible asset

Depletion for tax purposes must always equal cost depletion used for GAAP purposes

False

The revaluation method is allowed for property, plant, and equipment under

IFRS only

The cumulative amount of a tangible asset's cost that has been depreciated in all prior years plus the current year is called

accumulated depreciation

The group and composite methods of depreciation are similar because they both

apply straight-line depreciation to the assets based on average service lives of the assets

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

consideration received less the book value of asset sold

What is the purpose of group or composite depreciation

to reduce the record-keeping costs of determining depreciation

Amortization is appropriate for intangible assets with

finite useful lives

Accelerated Methods

Declining-balance methods, Sum-of-the-years'-digits method

TR Mining has a mineral mine with a depletion base of $500,000. It is estimated that 20,000,000 tons will be extracted over the mines useful life. During year 1, TR extracted 400,000 tons of minerals. The depletion for year 1 is

$100,000

Which of the following are not accumulated methods of depreciation?

Units of output depreciation Straight line depreciation

group depreciation method

defines the collection as depreciable assets that share similar service lives and other attributes

The total cost of plant and equipment to be expensed over its service life is referred to as its

depreciable base

Violet Company prepares its financial statements consistent with IFRS. At the beginning of the year, the company purchased land for $1 million. At the end of the year, the fair value of the land is $1.2 million. On its current year balance sheet, Violet Company should report land at:

either $1 million or $1.2 million

composite depreciation method

is used when assets are physically dissimilar but are aggregated anyway to gain the convenience of a collective depreciation calculation

Companies use accelerated depreciation for tax purposes because

it reduces taxable income in the early years of the asset's life

Which of the following would be included in a journal entry to record the allocation of the cost of a natural resource for the period?

Debit depletion expense Credit the natural resource

Which statement is true about the straight-line method of depreciation

It allocates an equal amount of depreciation to each year over the asset's service life

Which of the following is true when an asset is disposed and group depreciation is used?

It is assumed that the book value of the asset is equal to the proceeds received

If obsolescent were expected to limit the longevity of a protected product, the useful life of a patent might be _______ its legal life

less than

Group depreciation is calculated by

multiplying the group depreciation rate by the total cost of assets in the group for that period

group and composite depreciation commonly is used to

reduce costs of record keeping

Which of the following statements are true regarding depletion?

Units of production depreciation on assets used for natural resources often uses the same activity base that is used to calculate depletion Depletion is a product cost and is included in the cost of inventory of the resource extracted

Activity-Based Depreciation Methods

Units-of-production method

The Toal amount of cost to be allocated over an asset's service life is called its allocation _______

base

When selling a fixed asset the seller recognizes a gain or loss for the difference between the consideration received and the ______ value of the asset sold

book

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

depreciation, amortization

Depletion

Allocation of the cost of natural resources