MGMT 200 - Chapter 7
What is the formula for the profit margin ratio? a. Net income divided by average total assets. b. Gross profit divided by sales. c. Net income divided by average shareholders' equity. d. Net income divided by net sales.
d
An exclusive right to display a word, slogan, symbol, or emblem that distinctively identifies a company, product, or service is referred to as a a. trademark. b. patent. c. copyright. d. franchise.
a
A(n) ________ is the exclusive right to manufacture a product or use a process granted for a period of ________ years.
patent, 20
A(n) ________ is an exclusive right of protection given to a creator of a published work, such as a song, film, painting, photograph, or book.
copyright
A(n) ________ is protected by law and gives the creator of a published work the exclusive rights to reproduce and sell the work for the life of the creator plus 70 years.
copyright
The exclusive legal right to manufacture a product or to use a process is called a(n) ________.
patent
The original cost of the asset less the accumulated depreciation is the ________ ________ of the asset.
book value
The allocation of the cost of a tangible asset over its service life is referred to as ________. (Enter one word per blank)
depreciation
The allocation of the cost of a tangible fixed asset is referred to as ________, whereas the allocation of the cost of an intangible asset is referred to as ________.
depreciation, amortization
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
The gain or loss on disposal of an asset is calculated as: a. the cost of the asset less the accumulated depreciation b. consideration received less the fair value of the asset sold c. amount received less the book value of asset sold d. the fair value of the asset less the accumulated depreciation
c
On January 1, 2018, Lennox Corporation purchased equipment for $100,000. Lennox depreciated the equipment straight--line over 10 years with no residual value. What is the book value of the equipment on January 1, 2021? a. $50,000 b. $60,000 c. $100,000 d. $70,000
d
Otto Inc. retires old equipment with a book value of $2,400. Otto should a. recognize a gain of $2,400 b. debit cash for $2,400 c. not make a journal entry d. recognize a loss of $2,400
d
The accumulated depreciation account is classified as a(n) a. asset. b. expense. c. liability. d. contra asset.
d
Recording depreciation results in the allocation of the cost of a long-term asset to the years during which the asset provides ________.
benefits (revenues)
The formula to calculate an activity-based depreciation rate is: a. cost/actual production during the year. b. cost/estimated total production. c. (cost - residual value)/estimated total production. d. (cost - residual value)/actual production during the year.
c
Which of the following items are initially recorded as an expense on the income statement? (choose two) a. Research and development costs b. Advertising costs c. Purchased intangibles
a, b
Depreciation is a process of cost ________, and not a process of valuation.
allocation
Allocating the cost of intangible assets to expense is referred to as ________.
amortization
Definition: allocation of the cost of an intangible asset
amortization
A contractual arrangement in which one entity grants the purchaser the exclusive right to use the trade name, formulas, and product rights within a specific geographic area for a specific period of time is called a a. trademark. b. franchise. c. copyright. d. patent.
b
An asset that has no physical substance is referred to as a(n) a. finite asset. b. intangible asset. c. depreciable asset. d. current asset.
b
For accounting purposes, depreciation is a. a decline in value of an asset. b. an allocation of a cost of an asset. c. the selling price of an asset.
b
The service life or useful life of an asset is a. determined by MACRS tables. b. the time period from the purchase of the asset until it becomes impaired. c. the estimated use that the company expects to obtain from the asset before disposing of it.
c
Total depreciation recorded over an asset's service life is: a. highest when the double-declining balance method is used b. lowest when the activity-based method is used c. the same regardless of the depreciation method used d. lowest when the straight-line method is used
c
Definition: allocation of the cost of natural resources
depletion
Straight-line, declining-balance, and activity-based refer to methods commonly used to ________ property, plant, and equipment.
depreciate
Definition: allocation of the cost of a tangible fixed asset
depreciation
True or false: Depreciation is a valuation method for property and equipment.
false
Amortization refers to the allocation of the cost of ________ assets to expense.
intangible
An asset that has no physical substance is called a(n) ________ asset.
intangible
Use of MACRS for tax purposes usually results in ________ income tax in the earlier years of an asset's life.
lower
The profit margin ratio is defined as ________ ________ divided by net sales.(Enter one word per blank)
net income
The types of expenditures that can occur subsequent to an asset's acquisition are a. goodwill. b. repairs and maintenance. c. additions. d. improvements.
b, c, d
Wall Corporation exchanges old equipment for new equipment. The original cost of the old equipment was $100,000, and its accumulated depreciation at the date of exchange was $60,000. The new asset received had a fair value of $80,000 and a book value of $65,000. The journal entry to record this exchange will include which of the following entries? a. Credit accumulated depreciation $60,000 b. Credit gain on exchange of asset $40,000 c. Credit equipment $100,000 d. Credit equipment $80,000 e. Debit accumulated depreciation $60,000 f. Debit equipment $80,000 g. Debit equipment $65,000
b, c, e, f
Which of these are parts of the journal entry to record depreciation? a. Credit Depreciation Expense b. Credit Accumulated Depreciation c. Debit Accumulated Depreciation d. Debit Depreciation Expense
b, d
The purchase price and all costs to bring an asset to its desired condition and location for use should be ______. a. accrued b. expensed c. capitalized
c
Which account is credited in a journal entry to record depreciation on machinery? a. Machinery b. Cash c. Depreciation Expense d. Accumulated Depreciation
d
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. a. net present b. fair c. net realizable d. book
d
The formula to calculate the depreciation for the units-of-production method (activity-based depreciation) is ((cost - residual value)/total estimated production) x ______. a. historical cost b. current-year activity or production c. gross profit percentage d. total activity or production
b
When we recognize depreciation, we allocate a portion of the asset's cost to each year in which the asset a. decreases in value. b. provides benefits to the company. c. is owned by the company.
b
The formula for calculating the double-declining-balance method is a. book value at beginning of year x 2/estimated service life b. historical cost x 1/service life. c. book value at beginning of the year less residual value x 2/ estimated service life. d. historical cost less residual value x 2/estimated service life.
a
On January 1, 2018, Pritchett Corporation purchased equipment for $50,000. The equipment had a five-year life with a $10,000 residual value. Pritchett uses the straight-line depreciation method. What is the book value of the equipment on January 1, 2021? a. $30,000 b. $26,000 c. $20,000 d. $34,000
b
A(n) ________ is a contractual arrangement in which one entity grants the purchaser the exclusive right to use the trade name, formulas, and product rights within a specific geographic area for a specific period of time. (Enter one word per blank)
franchise
The depreciable cost of an asset is the asset's cost minus its estimated ________ value. (Enter one word per blank)
residual (salvage)
Straight-line deprecation is calculated as the depreciable cost divided by a. the estimated service life of the asset. b. the cost of the asset. c. the residual value of the asset.
a
Straight-line deprecation is calculated as the depreciable cost divided by a. the estimated service life of the asset. b. the residual value of the asset. c. the cost of the asset.
a
The formula for calculating declining balance depreciation is the depreciation rate per year times a. the book value at the beginning of the year. b. the cost less the residual value. c. the cost less the residual value less the accumulated depreciation.
a
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? a. Debit equipment $50,000 b. Credit equipment $90,000 c. Credit accumulated depreciation $70,000 d. Credit equipment $70,000 e. Debit equipment $45,000 f. Debit accumulated depreciation $70,000 g. Credit gain on exchange of asset $30,000
a, b, f, g
A retirement or abandonment of an asset is different from a sale of an asset because a. a loss must be recognized for the remaining book value. b. the residual value is included as a gain. c. no cash is received. d. a gain is recognized for the undepreciated portion of the equipment.
a, c
Other terms used for an activity-based depreciation method are: a. units of production method b. productivity method c. units of output method d. base depreciation method
a, c
Cheng 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 $40,000. The new equipment received had a fair value of $40,000 and a book value of $35,000. The journal entry to record this exchange will include which of the following entries? a. Debit loss on exchange $10,000 b. Debit equipment $35,000 c. Debit accumulated depreciation $40,000 d. Debit loss on equipment $15,000 e. Debit equipment $40,000 f. Credit equipment $90,000 g. Credit accumulated depreciation $40,000
a, c, e, f
The depreciation method that allocates an equal amount of the depreciable base to each year of the asset's service life is the a. MACRS b. straight-line method. c. units-of-output method. d. double-declining-balance method.
b
The original cost of an asset minus accumulated depreciation is a. residual value. b. book value. c. disposal value. d. goodwill.
b
The term used to describe the amount the company expects to receive for an asset at the end of its service life is a. historical cost. b. residual value. c. lower of cost or market value. d. impairment value.
b
The formula for straight-line depreciation is a. (cost + residual value)/service life. b. service life/(cost + residual value). c. cost/service life. d. (cost - residual value)/service life.
d
________ 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 (salvage)
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
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
A(n) ________ is an exclusive right to display a word, slogan, symbol, or emblem that distinctively identifies a company, product, or service.
trademark
Long-term tangible assets include a. goodwill. b. buildings. c. patents. d. land. e. equipment.
b, d, e
Which of the following are long-term tangible assets? a. Equipment b. Accounts receivable c. Copyright d. Trademark e. Property
a, e
Where is the account accumulated depreciation on equipment found on the financial statements? a. As an asset account on the balance sheet b. As a contra account to equipment on the balance sheet c. As a liability account on the balance sheet d. As an expense account on the income statement
b
Which statement is true about the straight-line method of depreciation? a. It recognizes expense proportionately with the amount of use of the asset. b. It allocates an equal amount of depreciation to each year the asset is used. c. It is the preferred method for companies expecting to use the asset more in its early years of life. d. It is an accelerated method of depreciation.
b
Which of the following does not differ among the different depreciation methods? a. Depreciation recognized during the last year of the asset's service life. b. Depreciation recognized during the earlier years. c. Total depreciation recognized over the asset's service life.
c
Units of production or units of output are alternative terms for the ________-________ depreciation method.
activity based
The depreciable cost is a. historical cost less accumulated depreciation. b. the cost of the asset minus the residual value. c. cost of the asset plus the residual value. d. cost of the asset minus depreciation expense.
b
Which depreciation methods allocate the cost of long-term assets based on time? a. valuation method b. declining-balance c. straight-line d. activity methods
b, c
Which of the following items are initially recorded as an expense on the income statement? a. Purchased intangibles b. Advertising costs c. Research and development costs
b, c
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? a. Debit equipment $32,000 b. Debit accumulated depreciation $40,000 c. Debit loss on exchange $30,000 d. Credit equipment $120,000 e. Credit accumulated depreciation $40,000 f. Debit equipment $50,000
b, c, d, f
The journal entry to retire old equipment that is not fully depreciated includes a: a. debit to cash b. debit to loss c. debit to accumulated depreciation d. credit to loss e. credit to equipment
b, c, e
Which of the following are commonly used depreciation methods? a. Increasing-balance b. Straight-line c. Declining-balance d. Value-based e. Activity-based
b, c, e