Chapter 7 study guide
The original cost of a plant asset minus accumulated depreciation.
Book Value of a Plant Asset
Cash and other assets expected to be exchanged for cash or consumed within a year.
Current Assets
Recorded annual depreciation on equipment.
Debit: Depreciation Expense - Equipment Credit: Accumulated Depreciation - Equipment
Recorded depreciation for part of year.
Debit: Depreciation Expense - Equipment Credit: Accumulated Depreciation - Equipment
A method that recognizes one half a year's depreciation in the year of acquisition.
Half-Year Convention
Land and anything attached to it.
Real Property
Discarded equipment with no book value.
Debit: Accumulated Depreciation - Equipment Credit: Equipment
Received cash for the sale of equipment for more than book value, all depreciation recorded.
Debit: Accumulated Depreciation - Equipment & Cash Credit: Depreciation Expense - Equipment & Equipment
Received cash for the sale of equipment for less than book value, all depreciation recorded,
Debit: Accumulated Depreciation - Equipment & Cash & Loss on Plant Assets Credit: Equipment
Paid cash plus old equipment for new equipment with a list price $4,500.00; original cost of old equipment, $3,500.00; total accumulated depreciation recorded to date of trade, $500.00.
Debit: Accumulated Depreciation - Equipment & Equipment Credit: Cash & Equipment
Discarded equipment with a book value, all depreciation recorded.
Debit: Accumulated Depreciation - Equipment & Loss on Plant Assets Credit: Equipment
Paid cash for new equipment,
Debit: Equipment Credit: Cash
A type of accelerated depreciation that multiplies the book value of an asset by a constant depreciation rate to determine annual depreciation.
Declining-Balance Method of Depreciation
The decrease in the value of a plant asset because of the removal of a natural resource.
Depletion
A business installs a new roof on a warehouse in the 10th year of its 30-year useful life. The cost of replacing the roof should be added to the cost of the plant asset.
False
A company purchases a building and land for $400,000. The building is appraised for $300,000 and the land for $150,000. The cost assigned to the land should be $150,000.
False
MACRS depreciation is an acceptable depreciation method for financial reporting.
False
MACRS depreciation rates are based on the straight-line method using the modified half-year convention.
False
Original cost, estimated useful life, and miles driven in a year are the three factors considered when calculating annual depreciation expense.
False
The double declining-balance rate of depreciation for a plant asset with a 4-year useful life is 25%.
False
The double-declining balance depreciation method ignores the salvage value.
False
The two most commonly-used MACRS classes, for plant assets other than real estate, are the three- and five-year property classes.
False
The value of an asset determined by tax authorities for the purpose of calculating taxes is called the millage rate.
False
When a plant asset is discarded, no notation needs to be made on the plant asset record.
False
A method that recognizes a full year's depreciation if the asset is acquired in the first half of the year.
Modified Half-Year Convention
All property not classified as real property.
Personal Property
The amount that will be received for an asset at the time of its disposal.
Salvage Value
Recording an equal amount amount of depreciation expense for a plant asset in each year of its useful life.
Straight-Line Method of Depreciation
A gain or loss on plant assets is not recorded when one plant asset is traded for a similar plant asset.
True
An accounting form on which a business records information about each plant asset is called a plant asset record.
True
Because of land's permanent nature, it is not subject to depreciation.
True
Calculating the estimated annual depreciation expense based on the amount of production expected from a plant asset is called the units-of-production method of deprecation.
True
If a plant asset is disposed of during a fiscal year, depreciation expense for part of a year is recorded.
True
International financial reporting standards require that significant components of a plant asset be recorded individually in different plant asset accounts.
True
Plant assets are sometimes referred to as fixed assets.
True
Salvage value is also referred to as residual value, scrap value, or trade-in value.
True
The estimated value of land after natural resources are removed should be considered in calculating a depletion rate.
True
The formula for calculating a plant asset's annual straight-line depreciation expense is: Original cost minus estimated salvage value divided by years of estimated useful life equals annual depreciation expense.
True
Three common ways of disposing of plant assets are discarding, selling, and trading.
True
Whatever method a business selects to calculate depreciation expense for a portion of a year, that method should be used consistently from year to year.
True
