Accounting 1A Chapter 10

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Long-term or relatively permanent tangible assets that are used in the normal business operations. ch10: fixed assets
The systematic periodic transfer of the cost of a fixed asset to an expense account during its expected useful life. ch10: depreciation
The estimated value of a fixed asset at the end of its useful life. ch10: residual value
A method of depreciation that provides for equal periodic depreciation expense over the estimated life of a fixed asset. ch10: straight-line method
A method of depreciation that provides for depreciation expense based on the expected productive capacity of a fixed asset. ch10: units-of-production method
A method of depreciation that provides periodic depreciation expense based on the declining book value of a fixed asset over its extimated life. ch10: declining-balance method
The cost of a fixed asset minus accumulated depreciation on the asset. ch10: book value
A depreciation method that provides for a higher depreciation amount in the first year of the asset's use, followed by a gradually declining amount of depreciation. ch10: accelerated depreciation
The costs of acquiring fixed assets, adding to a fixed asset, improving a fixed asset, or extending a fixed asset's useful life. ch10: capital expenditures
Costs that benefit only the current period or costs incurred for normal maintenance and repairs of fixed assets. ch10: revenue expenditures
The amount a seller allows a buyer for a fixed asset that is traded in for a similar asset. ch10: trade-in allowance
The amount a buyer owes a seller when a fixed asset is traded in on a similar asset. ch10: boot
Leases that include one or more provisions that result in treating the leased assets as purchased assets in the accounts. ch10: capital leases
Leases that do not meet the criteria for capital leases and thus are accounted for as operating expenses. ch10: operating leases
The process of transferring the cost of natural resources to an expense accout. ch10: depletion
Long-term assets that are useful in the operations of a business, are not held for sale, and are without physical qualities. ch10: intangible assets
The periodic transfer of the cost of an intangible asset to expense. ch10: amortization
An intangible asset that is created from such favorable factors as location, product quality, reputation, and managerial skill. ch10: goodwill
Exclusive rights to produce and sell goods with one or more unique features. ch10: patents
An exclusive right to publish and sell a literary, artistic, or musical composition. ch10: copyright
A name, term, or symbol used to identify a business and its products. ch10: trademark
A financial ratio that provides a measure indicating the margin of safety to creditors. ch10: ratio of fixed assets to long-term liabilities
Long-term or relatively permanent tangible assets that are used in the normal business operation are called ________assets. ch10: fixed
Surveying fees incurred in connection with securing title of land for use by a business is debited to the ___________account. ch10: land
The cost of a special foundation incurred in connection with the acquisition of a secondhand machine would be debited to the _________account. ch10: machine
The estimated value of a fixed asset at the end of its useful life is called _________value. ch10: residual
The ______-_____-___________ method is a method of depreciation that provides for depreciation expense based on the expected productive capacity of a fixed asset. ch10: units-of-production
The cost of a fixed asset minus accumulated depreciation on the asset is called the _______value. ch10: book
A useful life of 4 years is equivalent to a straight-line depreciation rate of ________. ch10: 25%
Costs that benefit only the current period or costs incurred for normal maintenance and repairs are called _________. ch10: revenue expenditures
__________leases treat the leased assets as purchased assets for the accounts. ch10: capital
The process of transferring the cost of natural resources to an expense account is called _________. ch10: depletion
__________is the periodic transfer of a cost of an intangible asset to expense. ch10: amortization
Equipment acquired on the first day of the current fiscal year for $50,000 has an estimated life of 4 years or 25,000 hours and a residual value of $5,000. Depreciation for the current year suing the straight-line method is ________. ch10: $11,250
Equipment acquired on the first day of the current fiscal year for $50,000 has an estimated life of 4 years or 25,000 hours and a residual value of $5,000. Depreciation for the current year using the delining-balance method (using twice the straight-line: $25,000
Equipment acquired on the first day of the current fiscal year for $50,000 has an estimated life of 4 years or 25,000 hours and a residual value of $5,000. The equipment was used for 7,000 hours during the current year. Depreciation for the current year: $12,600
The costs of acquiring fixed assets, adding to a fixed asset, improving a fixed asset, or extending a fixed asset's useful life are called _________expenditures. ch10: capital
The amount a seller allows a buyer for a fixed asset that is traded in for a similar asset is call a(n)______-_____ __________. ch10: trade-in allowance
Old equipment with a book value of $25,000 is traded in on similar equipment priced at $70,000. A trade-in allowance of $30,000 is allowed on the old equipment, and the balance is paid in cash. The new equipment should be recorded at a cost of __________: $65,000
______are exclusive rights to produce and sell goods with one or more unique features. ch10: patents
The cost of a patent is amortized by debiting Amortization Expense--Patents and crediting________. ch10: Patents
A name, term, or symbol used to identify a business and its prodcuts is called a(n)__________. ch10: trademark
_________is the amount a buyer owes a seller when a fixed asset is traded in on a similar asset. ch10: boot
A useful life of 5 years is equivalent to a straight-line depreciation rate of _________. ch10: 20%
The cost of razing an unwanted building on land purchased for use by a business is debited to the ________account. ch10: land
Equipment acquired on the first day of the current fiscal year for $80,000 has an estimated life of 5 years or 25,000 hours and a residual value of $10,000. Depreciation for the current year using the straight-line method is _________. ch10: $14,000
Equipment acquired on the first day of the current fiscal year for $80,000 has an estimated life of 5 years or 25,000 hours and a residual value of $10,000. Depreciation for the current year using the declining-balance method (using twice the straight-li: %32,000
Equipment acquired on the first day of the current fiscal year for $80,000 has an estimated life of 5 years or 25,000 hours and a residual value of $10,000. The equipment was used for 6,000 hours during the current year. Depreciation for the current year: $16,800
Depreciation methods that provide for a higher depreciation amount in the first year of the asset's use, followed by a gradually declining amount of depreciation, are referred to as _________ depreciation methods. ch10: accelerated
Costs that benefit only the current period or costs incurred for normal maintenance and repairs of fixed assets are called _______ expenditures. ch10: revenue
The costs of acquiring fixed assets, adding to a fixed asset, improving a fixed asset, or extending a fixed asset's useful life are called __________ ________. ch10: capital expenditures
Old equipment with a book value of $25,000 is traded in on similar equipment priced at $70,000. A trade-in allowance of $18,000 is allowed on the old equipment, and the balance is paid in cash. The new equipment should be recorded at a cost of __________: $70,000
_______ leases do not meet the criteria for capital leases and thus are accounted for as operating expenses. ch10: Operating
Long-term assets that are useful in the operations of a business, are not held for sale, and are without physical qualities are called __________ assets. ch10: intangible
___________ is an intangible asset of a business that is created from such favorable factors as location, product quality, reputation, and managerial skill. ch10: goodwill
A(n) ___________ is an exclusive right to publish and sell a literary, artistic, or musical composition. ch10: copyright
Depletion expense related to a mineral ore deposit is recorded by debiting Depletion Expense and crediting ______ ________. ch10: Accumulated Depletion
Research and development costs are normally accounted for as ______ _______ ______ in the period in which they are incurred. ch10: current operating expenses
The ratio of ____ ____ ___ ___ - _____ ______ provides a measure of the margin of safety to creditors. ch10: fixed assets to long-term liabilities
If unwanted buildings are located on land acquired for a plant site, the cost of their removal, less any salvage recovered, should be charged to the: a)expense accounts b)building account c)land account d)accumulated depreciation acco: c. If unwanted buildings are located on land acquired for a plant site, the cost of their removal, less any salvage recovered, should be charged to the land account.
The depreciation method used most often in the financial statements is the: a) straight-line method b) declining-balance method c) units-of-production method d) MACRS method ch10: a)Correct. The depreciation method used most often in the financial statements is the straight-line method.
b) Incorrect. The declining-balance method is the third most used method for financial statements.
c)Incorrect. The units-of-production method is the second most used method for financial statements.
d)Incorrect.The MACRS method is used to compute depreciation for tax purposes.
The depreciation method that would provide the highest reported net income in the early years of an asset's life would be: a)straight-line b)declining-balance c)150% straight-line d)accelerated ch10: a)correct. The depreciation method that would provide the highest reported net income in the early years of an asset's life would be the straight-line method.
b)incorrect. The declining-balance depreciation method is an accelerated depreciation method that provides more depreciation in the early years of an asset's life.
c)incorrect. The 150% straight-line depreciation method is an accelerated depreciation method that provides more depreciation in the early years of an asset's life.
d)incorrect. Accelerated depreciation methods provide more depreciation in the early years of an asset's life.
Equipment with an estimated useful life of 5 years and an estimated residual value of $1,000 is acquired at a cost of $15,000. Using the declining-balance method (at twice the straight-line rate), what is the amount of depreciation for the first year of: d) Using the declining-balance method (at twice the straight-line rate), the amount of depreciation for the first year of use of the equipment is $6,000 ($15,000 x 40%).
Equipment that cost $20,000 was originally estimated to have a useful life of 5 years and a residual value of $2,000. The equipment has been depreciated for 2 years using straight-line depreciation. During the third year it is estimated that the remainin: b) The depreciation expense on the equipment in Year 3 using the straight-line method would be $5,900, computed as follows: depreciation in Years 1 and 2 is $3,600 per year [($20,000-$2,000)/5 years]; book value at the end of Year 2 is $12,800 (20,000-$3,600-$3,600); remaining depreciation is computed as $5,900[($12,800-$1,000)/2 years].
Assume that a drill press is rebuilt during its sixth year of use so that its useful life is extended 5 years beyond the original estimate of 10 years. In this case, the cost of rebuilding the drill press is: a) a revenue expenditure b) a repla: b) The cost of rebuilding the drill press is a replacement component and should be capitalized.
Old equipment which cost $11,000 and has accumulated depreciation of $6,300 is given, along with $9,000 in cash, for the same type of new equipment with a price of $15,600. At what amount should the new equipment be recorded? a) $15,600 b) $15,: a.incorrect. $15,600 is the list price of the new equipment. It must be reduced by the unrecognized gain on the old equipment to determine the cost of the new equipment.
b) incorrect. $15,300 is the accumulated depreciation of the old equipment plus the cash (boot) given of $9,000. It is not the cost of the new equipment.
c)correct. The new equipment should be recorded at $13,700 determined as follows: book value of old equipment is $4,700 ($11,000 - $6,300); trade-in value allowed on the old equipment is $6,600 ($15,600-$9,000); gain on trade-in of the old equipment of $1,900 ($6,600 - $4,700) is not recognized and instead reduces the cost of the new equipment; thus, the cost of the new equipment is $13,700 ($15,600-$1,900). Alternatively, the cost of the new equipment is the cash (boot) given, $9,000, plus the book value of the old equipment, $4,700.
d)incorrect. $9,000 is the cash (boot) given. It must be added to the book value of the old equipment to determine the cost of the new equipment.
Old equipment which cost $11,000 and has accumulated depreciation of $6,300 is given, along with $11,500 in cash is given for the new equipment. At what amount should the new equipment be recorded for financial accounting purposes? a) $16,200 b: b. The new equipment should be recorded at $15,600, the price of the new equipment. A loss of $600.00 would also be recorded on the trade-in of the old equipment computed as follows: book value of the old equipment is $4,700 ($11,000-$6,300); trade-in value allowed on the old equipment is $4,100 ($15,600-$11,500); loss on trade-in of the old equipment is $600 ($4,700-$4,100).
In a lease contract, the party who legally owns the asset is the : a)contractor b) operator c) lessee d) lessor ch10: c.incorrect. The lessee is the party to whom the rights to use the asset are granted by the lessor.
d.correct. The lessor legally owns the asset.
Which of the following items would not be considered an intangible asset? a) mineral ore deposits b) patent c) copyright d) goodwill ch10: a. correct. Mineral ore deposits are natural resources with tangible characteristics.
b).incorrect. Patents do not have tangible characteristics and are intangible assets.
c)incorrect. Copyright do not have tangible characteristics and are intangible assets.
d)incorrect. Goodwill do not have tangible characteristics and are intangible assets.
The declining-balance method provides for a higher depreciation charge in the first year of use of the asset, followed by a gradually declining periodic charge. True/False ch10: True
The method of depreciation which yields a depreciation charge that varies with the amount of asset useage is known as the units-of-production method. True/False ch10: True
In using the declining-balance method, the asset should not be depreciated below the net book value. True/False ch10: False. In using the declining-balance method, the asset should not be depreciated below the asset's residual value, not below the net book value.
Accelerated depreciation methods are most approriate for situations in which the decline in productivity or earning power of the asset is proportionately greater in the early years of its use than in later years. True/False ch10: True
MACRS depreciation methods permit the use of asset lives that are often much shorter than the actual useful life. True/False ch10: True
When an old fixed asset is traded in for a new fixed asset having a similar use, proper accounting treatment prohibits recognition of gain. True/False ch10: True
A lease that transfers ownership of the leased asset to the lessee at the end of the lease term should be classified as an operating lease. True/False ch10: False. A lease that transfers ownership of the leased asset to the lessee at the end of the lease term should be classified as a capital lease, not an operating lease.
Long-lived assets that are without physical characteristics but useful in the operations of a business are classified as fixed assets. True/False ch10: False. Long-lived assets that are without physical characteristics but useful in the operations of a business are classified as intangible assets, not fixed assets.
Fully depreciated assets should be retained in the accounting records until disposal has been authorized and they are removed from service. True/False ch10: True
Intangible assets are usually reported on the balance sheet in the current asset section. True/False ch10: False. Intangible assets are usually reported on the balance sheet in a separate section immediately following fixed assets, not in the current asset section.

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