chapter 7 - acct
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
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.
A retirement or abandonment of an asset is different from a sale of an asset because
no cash is received a loss must be recognized for the remaining book value
Which of the following are long-term tangible assets?
property and equipment
Straight-line deprecation is calculated as the depreciable cost divided by
the estimated service life of the asset
What is the formula for the profit margin ratio?
net income divided by net sales
Which depreciation methods allocate the cost of long-term assets based on time?
straight-line declining-balance
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
MACRS
commonly used for tax reporting
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
Otto Inc. retires old equipment with a book value of $2,400. Otto should
recognize a loss of $2400
The types of expenditures that can occur subsequent to an asset's acquisition are
repairs and maintenance additions improvements
expensed
research and development costs
_____ value is the amount the company expects to receive for the asset at the end of its service life.
residual
When an asset is no longer useful, but cannot be sold, we have a
retirement
The estimated use the company expects to obtain from an asset before disposing of it is referred to as the life of the asset. (Enter one word per blank)
service
Which of the following are commonly used depreciation methods?
straight-line declining-balance activity-based
Other terms used for an activity-based depreciation method are:
units of production method units of output method
The journal entry to retire old equipment that is not fully depreciated includes a:
credit to equipment debit to loss debit to accumulated depreciation
The formula for straight-line depreciation is
(cost - residual value)/service life
For accounting purposes, depreciation is
an allocation of a cost of an asset
capitalized
Purchase price plus costs necessary to get asset ready for use
Recording depreciation results in the allocation of the cost of a long-term asset to the years during which the asset provides .
benefits
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 an asset minus accumulated depreciation is
book value
The formula for calculating the double-declining-balance method is
book value at beginning of year x 2/estimated service life
Long-term tangible assets
buildings, equipment and land
The purchase price and all costs to bring an asset to its desired condition and location for use should be
capitalized
straight-line
commonly used for financial statement purposes
The allocation of the cost of a tangible asset over its service life is referred to as
depreciation
When an asset has a significant decline in value and is written down, this is called .
impairment
Which of the following are expenditures for assets subsequent to acquisition?
improvements repairs and maintenance additions
In accounting, the term impairment refers to
an asset's significant decline in value
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?
Credit equipment $120,000 Debit accumulated depreciation $40,000 Debit equipment $50,000 Debit loss on exchange $30,000
Units of production or units of output are alternative terms for the - depreciation method.
activity based
Which of the following items are initially recorded as an expense on the income statement?
advertising costs research and development costs
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
The gain or loss on disposal of an asset is calculated as:
amount received less the book value of asset sold
Krasel 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 $70,000. The new asset received had a fair value of $50,000 and a book value of $45,000. The journal entry to record this exchange will include which of the following entries?
credit equipment $90,000 Debit accumulated depreciation $70,000 Credit gain on exchange of asset $30,000 Debit equipment $50,000
An asset that has no physical substance is referred to as a(n)
intangible asset
Companies use accelerated depreciation for tax purposes because
it reduces taxable income in the early years of the asset's life and provides better cash flows.
The formula for calculating declining balance depreciation is the depreciation rate per year times
the book value at the beginning of the year
Total depreciation recorded over an asset's service life is:
the same regardless of the depreciation method used
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
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
Use of MACRS for tax purposes usually results in ______ income tax in the earlier years of an asset's life
less
The formula to calculate the depreciation for the units-of-production method (activity-based depreciation) is ((cost - residual value)/total estimated production) x ______.
current-year activity or production