Chapter 11 Practice Quiz

The major difference between the service life of an asset and its physical life is that

service life refers to the time an asset will be used by a company and physical life refers to how long the asset will last.

For 2014, Lassiter Company reports beginning of the year total assets of $900,000, end of the year total assets of $1,100,000, net sales of $1,250,000, and net income of $250,000. Lassiter's 2014 asset turnover ratio is

1.25 times

Lundy Company purchased a depreciable asset for $99,000. The estimated salvage value is $18,000, and the estimated useful life is 9 years. The double-declining balance method will be used for depreciation. What is the depreciation expense for the second year on this asset? (Round the depreciation rate (expressed as a percentage) to the nearest whole, e.g. 15%)

16,988

Erie Corporation owns machinery with a book value of $2,200,000. It is estimated that the machinery will generate future cash flows of $1,995,000. The machinery has a fair value of $1,915,000. The journal entry to record the impairment loss will

credit the asset's Accumulated Depreciation account by $285,000

An asset impairment occurs when the asset's carrying amount exceeds the:

expected future net cash flow

Ignoring income tax effects, accelerated depreciation methods can

offset the effect of increasing repair and maintenance costs as the asset ages

Which of the following is not true of depreciation accounting? a. Depreciation lowers the book value of the asset as it ages and its fair value declines. b. Depreciation is a process of cost allocation. c. Tangible assets with limited lives are depreciated. d. Depreciation matches expenses against revenues over the periods which benefit from the asset's use.

a. Depreciation lowers the book value of the asset as it ages and its fair value declines.

Which of the following principles best describes the conceptual rationale for the methods of matching depreciation expense with revenues? a. Immediate recognition b. Associating cause and effect c. Partial recognition d. Systematic and rational allocation

d. Systematic and rational allocation

Mains Corporation owns equipment with a cost of $290,000 and accumulated depreciation at December 31, 2014 of $150,000. It is estimated that the machinery will generate future cash flows of $165,000. The machinery has a fair value of $115,000. Mains should recognize a loss on impairment of

$0

Flannery Corporation owns machinery with a book value of $520,000. It is estimated that the machinery will generate future cash flows of $465,000. The machinery has a fair value of $415,000. Florence should recognize a loss on impairment of

$105,000

Chattanooga Company purchased a depreciable asset for $80,000 on January 1, 2012. The estimated salvage value is $20,000, and the estimated useful life is 5 years. The straight-line method is used for depreciation. On January 1, 2014, the company made a capital expenditure of $16,000 for an addition to the asset. What is depreciation expense for 2014?

17,333

Antigua Company purchased a depreciable asset for $45,000 on October 1, 2012. The estimated salvage value is $9,000, and the estimated useful life is 6 years. The straight-line method is used for depreciation. What is the book value on July 1, 2014 when the asset is sold?

34,500

Cambodian Import Company purchased a depreciable asset for $160,000 on April 1, 2011. The estimated salvage value is $40,000, and the estimated useful life is 5 years. The straight-line method is used for depreciation. What is the balance in accumulated depreciation on March 1, 2014 when the asset is sold?

70,000

Dixon Company purchased a depreciable asset for $32,000. The estimated salvage value is $4,000, and the estimated useful life is 4 years. The double-declining balance method will be used for depreciation. What is the depreciation expense for the second year on this asset?

8,000

When is the restoration of an impairment loss permitted?

On all tangible assets whether held for use of disposal

A general description of the depreciation methods applicable to major classes of depreciable assets a. should be included in corporate financial statements or notes thereto. b. is needed in financial reporting when company policy differs from income tax policy. c. is not a current practice in financial reporting. d. is not essential to a fair presentation of financial position.

a. should be included in corporate financial statements or notes thereto.

All of the following are economic factors related to depreciation except: a. supersession b. obsolescence c. wear and tear d. inadequacy

c. wear and tear

Which one of the following statements regarding revision of depreciation rates is incorrect? a. No entry is made at the time a revision of depreciation rates occurs. b. Opening balances are not adjusted when a change in estimate occurs. c. Depreciation is computing by dividing the remaining book value less any salvage value by the remaining estimated life. d. Changes in estimate should be handled in the current period only.

d. Changes in estimate should be handled in the current period only.

Economic factors that shorten the service life of an asset include: a. supersession b. obsolescence c. inadequacy d. all of these answer choices are correct

d. all of these answer choices are correct

A principal objection to the straight-line method of depreciation is that it a. tends to result in a constant rate of return on a diminishing investment base b. gives smaller periodic write-offs than decreasing charge methods c. provides for the declining productivity of an aging asset d. ignores variations in the rate of asset use

d. ignores variations in the rate of asset use

An impairment of property, plant, or equipment has occurred if

the expected future net cash flows is less than the asset's carrying value

In computing partial-year depreciation, depreciation is normally computed on the basis of:

the nearest full month

Unless otherwise stipulated, depreciation is normally computed on the basis of:

the nearest full month