Financial accounting Module 5
The formula for calculating declining-balance depreciation is the depreciation rate per year times
the book value at the beginning of the year
The depreciable cost is
the cost of the asset minus the residual value
The depreciable cost is
the cost of the asset minus the residual value.
Straight-line deprecation is calculated as the depreciable cost divided by
the estimated service life of the asset.
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.
Total depreciation recognized over an asset's service life is:
the same regardless of the depreciation method used
Straight-line and declining-balance methods allocate the cost of a long-term asset based on BLANK while an activity-based method allocates the cost of an asset based on its BLANK
time use
Other terms used for an activity-based depreciation method are:
units of production method units of output method
Which of the following are commonly used depreciation methods?
Declining-balance Straight-line Activity-based
The formula to calculate an activity-based depreciation rate is:
(cost - residual value)/estimated total production.
The formula for straight-line depreciation is
(cost - residual value)/service life.
Recognizing depreciation results in the allocation of the cost of a long-term asset to the years during which the asset provides
Benefits
The original cost of an asset minus accumulated depreciation is
Book value
Match each term with its definition.
Depreciation: Allocation of the cost of a tangible fixed asset Depletion: Allocation of the cost of natural resources Amortization: Allocation of the cost of an intangible asset
An asset that has no physical substance is called a(n) ___ asset
Intangible
An asset that has no physical substance is referred to as a(n)
Intangible asset
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.
Which of the following are long-term tangible assets?
Property Equipment
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 of the following does not differ among the different depreciation methods?
Total depreciation recognized over the asset's service life.
Units of production or units of output are alternative terms for the BLANK BLANK depreciation method.
activity based
Allocating the cost of intangible assets to expense is referred to as
amortization
For accounting purposes, depreciation is
an allocation of a cost of an asset.
In accounting, the term impairment refers to
an asset's significant decline in value.
The original cost of an asset minus accumulated depreciation is
book value
The original cost of the asset less the accumulated depreciation is the BLANK BLANK of the asset.
book value
The formula for calculating depreciation in the double-declining-balance method is
book value at beginning of year x 2/estimated service life
The purchase price and all costs to bring an asset to its desired condition and location for use should be
capitalized
The formula to calculate the depreciation for the units-of-production method or activity-based depreciation, is ((cost - residual value)/total estimated production) x Blank_____
current-year activity or production
The financial statement effects of recognizing depreciation includes a
decrease in assets decrease in net income decrease in stockholders equity
Depreciation has the effect of Blank______ assets and Blank______ stockholders' equity.
decreasing; decreasing
Straight-line, declining-balance, and activity-based refer to methods commonly used to BLANK property, plant, and equipment.
depreciate
The allocation of the cost of a tangible asset over its service life is referred to as BLANK
depreciation
The allocation of the cost of a tangible fixed asset is referred to as BLANK whereas the allocation of the cost of an intangible asset is referred to as BLANK
depreciation amortization
When an asset has a significant decline in value and is written down, this is called
impairment
Amortization refers to the allocation of the cost of BLANK assets to expense
intangible
Companies use accelerated depreciation for tax purposes because Multiple choice question.
it reduces taxable income in the early years of the asset's life and provides better cash flows.
Long-term tangible assets include
land. buildings. equipment.
Use of MACRS for tax purposes usually results in BLANK income tax in the earlier years of an asset's life.
lower
The profit margin ratio is defined as BLANK BLANK divided by net sales.
net income
What is the formula for the profit margin ratio?
net income divided by net sales
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.
BLANK value is the amount the company expects to receive for the asset at the end of its service life. (Enter one word per blank)
residual
The depreciable cost of an asset is the asset's cost minus its estimated BLANK value.
residual
The term used to describe the amount the company expects to receive for an asset at the end of its service life is
residual value
The estimated use the company expects to obtain from an asset before disposing of it is referred to as the BLANK life of the asset
service
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
Which depreciation methods allocate the cost of long-term assets based on time? (Select all that apply.)
straight-line declining-balance
