ACCT CH 7

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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

the estimated use that the company expects to obtain from the asset before disposing of it

service life of an asset

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

allocation of the cost of a tangible fixed asset

depreciation

an allocation of a cost of an asset

depreciation

the allocation of the cost of a tangible asset over its service life

depreciation

the amount the company expects to receive for the asset at the end of its service life

residual

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

retirement

what is the journal entry to record depreciation?

-debit depreciation expense -credit accumulated depreciation

Long-lived assets are typically classified in two categories...

tangible and intangible

long term assets are classified as...

tangible and intangible

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

amount received less the book value of asset sold

At the beginning of year 1, Looby Corp. purchases equipment for $100,000. The equipment has a residual value of $20,000 and an expected service life of 10 years. What is straight-line depreciation for year 1?

(100,000-20,000)/ 10 yrs = $8,000 per year

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

the types of expenditures that can occur subsequent to an asset's acquisition are...

-improvements -repairs and maintenance -additions

Cray uses the activity-based depreciation method. Cray purchases equipment for $210,000 and expects to use the equipment for 60,000 machine hours. The machine has a residual value of $30,000. The depreciation rate is

210,000 - 30,000 = 180,000 / 60,000 hrs = $3.00 per machine hour

allocation of the cost of intangible asset

amortization

Where is the account accumulated depreciation on equipment found on the financial statements?

as a contra account to equipment on the balance sheet

Recording depreciation results in the allocation of the cost of a long-term asset to the years during which the asset provides...

benefits or revenues

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 first step in determining whether an impairment loss should be recorded is to determine if the sum of estimated future cash flows from an asset is less than the asset's

book value

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

capitalized

the accumulated depreciation account is classified as a(n)

contra asset

allocation of the cost of natural resources

depletion

an asset's significant decline in value

impairment

When an asset's fair value falls below its book value, the difference between fair value and book value is recognized as a(n) __________________

impairment loss

an asset that has no physical substance

intangible asset

a long lived asset is assumed to be impaired if its estimated future cash flows are ________ than its book value

less


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