True/False
Indicate whether the sentence or statement is true
or false.
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1.
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Salvage value should be ignored when the sum-of-the-years'-digits method of
depreciation is used.
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2.
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The
recorded cost of an asset should include both the net invoice price and all transportation and
installation costs.
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3.
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The
cost of land is not depreciated.
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4.
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Use
of the sum-of-the-years'-digits method of depreciation results in lower depreciation charges in the
early years of an asset's life and higher charges in the later years.
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5.
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Under
the declining-balance method of depreciation, the accountant applies an appropriate percentage to the
book value of an asset to obtain the depreciation charge for each year.
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6.
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For
financial accounting purposes, when an asset is traded in for a similar asset, a gain is reported if
the trade-in allowance exceeds the book value of the asset traded in.
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7.
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Property, plant, and equipment are often referred to as fixed assets or long-lived
assets.
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8.
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Patents and copyrights are intangible assets.
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9.
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Accumulated Depreciation is classified as a contra asset account.
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10.
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The
adjustment for the annual depreciation expense on equipment includes a debit to Accumulated
Depreciation—Equipment.
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11.
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The
salvage value is the value that the asset is expected to have at the end of its useful
life.
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12.
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The
declining-balance method is an accelerated method of computing depreciation.
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13.
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When
the sum-of-the-years'-digits method of depreciation is used, the denominator (bottom part) of the
fraction for any year is the number of years remaining in the useful life of the asset.
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14.
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The
balance of an Accumulated Depletion account is subtracted from the related natural resource account
to determine the book value of the natural resource.
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15.
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When
an asset is sold, the first thing an accountant must do is record the depreciation to the date of
sale.
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Multiple Choice
Identify the
letter of the choice that best completes the statement or answers the question.
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16.
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A
firm purchases an asset for $40,000 and estimates that it will have a useful life of five years and a
salvage value of $5,000. Under the double-declining-balance method, the depreciation expense
for the first year of the asset's useful life is a. | $7,000. | c. | $8,000. | b. | $14,000 | d. | $16,000. | | | | |
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17.
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The
entry to record the sale of equipment used in a business may include a debit to a. | the Equipment
account. | b. | the Gain on Sale of Equipment
account. | c. | the Accumulated Depreciation--Equipment
account. | d. | Depreciation Expense account. | | |
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18.
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The
method of depreciation that results in the same amount of depreciation expense each year is
the a. | units-of-output
method. | c. | sum-of-the-years'-digits method. | b. | straight-line
method. | d. | declining-balance method. | | | | |
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19.
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The
book value of an asset is a. | the market value of the asset. | b. | the portion of
the asset's cost that has not yet been charged to expense. | c. | the acquisition
cost shown in the asset account less the estimated salvage value. | d. | the replacement
cost of the asset. | | |
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20.
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An
asset that cost $12,000 was sold for $8,000 cash. Accumulated depreciation on the asset was
$6,000. The entry to record this transaction includes the recognition of a. | a gain of
$2,000. | c. | neither a gain
nor a loss. | b. | a loss of $4,000. | d. | a loss of $2,000. | | | | |
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21.
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Assume that a business trades in an old cash register for a new one. Under the
income tax method, a. | a gain may be recognized, but a loss cannot be
recorded. | b. | the cost of the new asset is recorded as the cash paid for the
new asset. | c. | the asset account is debited for the difference between the
original cost of the old asset and the fair market value of the new asset. | d. | the cost of the
new asset is recorded as the book value of the old asset plus the cash amount paid or to be
paid. | | |
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22.
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Equipment that cost $15,000 was sold for $10,000 cash. Accumulated depreciation
on the asset was $9,000. The entry to record the sale includes a credit to the Equipment
account for a. | $6,000. | c. | $15,000. | b. | $10,000. | d. | $9,000. | | | | |
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23.
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A company
purchased equipment for $15,000 cash. In addition, the company paid $1,000 to have the
equipment delivered and $500 to have it installed. The cost of this asset for financial
accounting purposes is a. | $15,000. | b. | $16,000. | c. | $16,500. | d. | $15,500. | | |
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24.
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The
allocation of the costs of natural resources, such as minerals, to the units produced is referred to
as a. | depreciation. | b. | depletion. | c. | amortization. | d. | salvage
value. | | |
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25.
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Use
of the declining-balance method results in a. | higher depreciation charges in the early years of an asset's
life. | b. | lower depreciation charges in the early years of an asset's
life. | c. | the same amount of depreciation each year of an asset's
life. | d. | higher total depreciation over the life of the
asset. | | |
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26.
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The
denominator of the fraction that is used in the sum-of-the-years'-digits method of depreciation for
an asset with a useful life of seven years is
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27.
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When
computing depreciation, the salvage value should be ignored if a company uses a. | the
units-of-output method. | c. | the
declining-balance method. | b. | the sum-of-the-years'-digits
method. | d. | the
straight-line method. | | | | |
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