Chapter 9 ACCT extra credit
On January 1, Busy Beaver, Inc., signed a $315,000, 5-year note payable to buy a new industrial veneer cutter. Busy Beaver plans to use the machine for 10 years and then sell it for its scrap value of $5,000. Using straight-line depreciation, Depreciation Expense for the 1st year ended December 31 equals ______.
$31,000 Straight-line depreciation equals $31,000 or ($315,000 - 5,000 x 1)/10 years.
On January 1, X-it Company bought a new delivery truck for $30,000. X-it plans to use the truck for 4 years, after which it will be sold for $6,000. Depreciation Expense for the 2nd year using double-declining-balance equals ______.
$7,500 Reason: The expense equals $7,500 or ($30,000 - 15,000) x 2/4. The formula is the book value (or cost minus Accumulated Depreciation) times 2 divided by the life. Year 1's $15,000 Accumulated Depreciation equals $30,000 x 2/4.
The Three Little Pigs purchased three houses for a total cost of $160,000. Appraisal values for the three completed houses were: straw house, $40,000; wood house $60,000; and brick house $100,000. Using the basket purchase allocation, the recorded value of the brick house should be ______.
$80,000 Reason: The recorded value of the brick house equals $80,000 or ($100,000/($40,000 + 60,000 + 100,000)) x $160,000. $80,000
Assuming straight-line is used, which of the following is the depreciation formula for the revision of an estimate?
(Book value-new residual value) x (1/remaining life)
What is the formula for calculating units-of-production depreciation?
(Cost - residual value) x (actual production this period/estimated total production)
Which of the following would cause the balance sheet to appear stronger and income statement to appear more profitable than it should?
Capitalizing costs that should be expensed.Reason: Capitalizing costs that should be expensed will cause assets to be overstated because an asset is debited instead of an expense. The expenses will be understated causing net income to be overstated.
What effect will the units-of-production depreciation method have when the actual production is higher than in other periods?
Depreciation Expense will be higher.
_________repairs to long-lived assets are capitalized because they are large expenditures and increase the useful life of the asset
Extraordinary
Which depreciation method results in higher depreciation expense when the asset is used more?
Units-of-production
When does impairment occur?
When circumstances interfere with the ability to recover the value of the asset through future operations
Recording an asset impairment requires netting the ______.
asset with its Accumulated Depreciation and then reducing the asset's carrying value to its lower fair market value
The effect of capitalizing a cost that should have been expensed causes ______.
assets to be overstated on the balance sheet and expenses to be understated on the income statement
The difference between the Equipment account and its Accumulated Depreciation is called the____-value
book/carrying
IFRS ______
divides the cost of an asset among its significant component parts and depreciates the components separately over their useful lives
A company may make an exception to the accounting rules and not capitalize a long-lived asset if its cost is
immaterial, insignificant, small, low, minimal, or negligible
Depreciation and impairment are different in that only ______
impairment represents the decline in the current value of the related asset
The formula for the fixed asset turnover ratio equals ______.
net revenue/average net fixed assets
