CH11

Which of the following is a realistic assumption of the straight-line method of depreciation?

The asset's economic usefulness is the same each year

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 principal objection to the straight-line method of depreciation is that it

ignores variations in the rate of asset use.

Depletion expense

is usually part of cost of goods sold.

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

include a CREDIT to the equipment ACCUMULATED DEPRECIATION account.

Composite or group depreciation is a depreciation system whereby

a straight-line rate is computed by dividing the total of the annual depreciation expense for all assets in the group by the total cost of the assets.

The book value of a plant asset is

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

For income statement purposes, depreciation is a variable expense if the depreciation method used is

units-of-production

Usually, companies compute depletion for accounting purposes using a

units-of-production method

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

Which of the following disclosures is not required in the financial statements regarding depreciation?

Details demonstrating how depreciation was calculated.

A graph is set up with "yearly depreciation expense" on the vertical axis and "time" on the horizontal axis. Assuming linear relationships, how would the graphs for straight-line and sum-of-the-years'-digits depreciation, respectively, be drawn?

Vertically and sloping down to the right

Worley Truck Rental uses the group depreciation method for its fleet of trucks. When it retires one of its trucks and receives cash from a salvage company, the carrying value of property, plant, and equipment will be decreased by the

cash received

For the composite method, the composite

life is the total depreciable cost divided by the total annual depreciation.

Use of the sum-of-the-years'-digits method

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