Chapter 10

A change in an accounting estimate is: Reflected in past financial statements. Reflected in future financial statements and also requires modification of past statements. Reflected in current and future years' financial statements, not in prior statements. Not allowed under current accounting rules. Considered an error in the financial statements.

A benefit of using an accelerated depreciation method is that: It is preferred by the tax code. It is the simplest method to calculate. It yields larger depreciation expense in the early years of an asset's life. It yields a higher income in the early years of the asset's useful life. The results are identical to straight-line depreciation.

Amortization is: The systematic allocation of the cost of an intangible asset to expense over its estimated useful life. The process of allocating to expense the cost of a plant asset to the accounting periods benefiting from its use. The process of allocating the cost of natural resources to periods when they are consumed. An accelerated form of expensing an asset's cost. Also called depletion.

Depletion is: The process of allocating the cost of natural resources to the period when it is consumed. Calculated using the double-declining balance method. Also called amortization. An increase in the value of a natural resource when incurred. The process of allocating the cost of intangibles to periods when they are used.

Peavey Enterprises purchased a depreciable asset for $22,000 on April 1, Year 1. The asset will be depreciated using the straight-line method over its four-year useful life. Assuming the asset's salvage value is $2,000, what will be the amount of accumulated depreciation on this asset on December 31, Year 3? Answers: $5,000 $15,000 $15,125 $20,000 $13,750

Ordinary repairs meet all of the following criteria except: Are expenditures to keep an asset in normal operating condition. Are necessary if an asset is to perform to expectations over its useful life. Extend the useful life of an asset beyond its original estimate. Include cleaning, lubricating, and normal adjusting. Are treated as expenses.

An asset's book value is $18,000 on December 31, Year 5. The asset has been depreciated at an annual rate of $3,000 on the straight-line method. Assuming the asset is sold on December 31, Year 5 for $15,000, the company should record: A loss on sale of $12,000. A gain on sale of $12,000. Neither a gain nor a loss is recognized on this transaction. A gain on sale of $3,000. A loss on sale of $3,000.

Land improvements are: Selected Answer: Assets that increase the usefulness of land, and like land, are not depreciated. Assets that increase the usefulness of land, but that have a limited useful life and are subject to depreciation. Included in the cost of the land account. Expensed in the period incurred. Also called basket purchases

Intangible assets do not include: Patents. Copyrights. Trademarks. Goodwill. Land held as an investment.

Holding a copyright: Gives its owner the exclusive right to publish and sell a musical or literary work during the life of the creator plus 70 years. Gives its owner an exclusive right to manufacture and sell a patented item or to use a process for 20 years. Gives its owner an exclusive right to manufacture and sell a device or to use a process for 50 years. Indicates that the value of a company exceeds the fair market value of a company's net assets if purchased separately. Gives its owner the exclusive right to publish and sell a musical or literary work during the life of the creator plus 20 years.

A leasehold is: A short-term rental agreement. The same as a patent. The rights granted to the lessee by the lessor of a lease. Recorded as revenue expenditure when paid. An asset held as an investment.

A total asset turnover ratio of 3.5 indicates that: For every $1 in sales, the firm acquired $3.50 in assets during the period. For every $1 in assets, the firm produced $3.50 in net sales during the period. For every $1 in assets, the firm earned gross profit of $3.50 during the period. For every $1 in assets, the firm earned $3.50 in net income. For every $1 in assets, the firm paid $3.50 in expenses during the period.

Another name for a capital expenditure is: Revenue expenditure. Asset expenditure. Long-term expenditure. Contributed capital expenditure. Balance sheet expenditure.

An asset can be disposed of by all of the following except: Discarding it. Selling it. Exchanging it for another asset. Donating it to charity. Continuing to use it after it is fully depreciated.

Depreciation: Selected Answer: Incorrect [None Given] Answers: Measures the decline in market value of an asset. Measures physical deterioration of an asset. Is the process of allocating the cost of a plant asset to expense. Is an outflow of cash from the use of a plant asset. Is applied to land.

Extraordinary repairs: Are revenue expenditures. Extend the useful life of an asset beyond its original estimate. Are credited to accumulated depreciation. Are additional costs of plants assets that do not materially increase the asset's life. Are expensed when incurred.

Owning a patent: Gives the owner the exclusive right to publish and sell a musical or literary work during the life of the creator plus 70 years. Gives the owner exclusive rights to manufacture and sell a patented item or to use a process for 20 years. Gives its owner an exclusive right to manufacture and sell a device or to use a process for 50 years. Indicates that the value of a company exceeds the fair market value of a company's net assets if purchased separately. Gives its owner the exclusive right to publish and sell a musical or literary work during the life of the creator plus 17 years

One characteristic of plant assets is that they are: Current assets. Used in operations. Natural resources. Long-term investments. Intangible.

Once the estimated depreciation expense for an asset is calculated: It cannot be changed, based on the historical cost principle. It may be revised based on new information. Any changes are accumulated and recognized when the asset is sold. The estimate itself cannot be changed; however, new information should be disclosed in financial statement footnotes. It cannot be changed, based on the consistency principle.

Natural resources are: Consumable assets such standing timber, mineral deposits, and oil and gas fields. Tangible assets used in the operations of the business. Current assets because they are depleted. Not subject to allocation to expense over their useful lives. Depleted using a straight-line method.

Salvage value is: Not a factor relevant to determining depletion. A factor relevant to amortizing an intangible asset with an indefinite life. An estimate of the asset's value at the end of its benefit period. A factor relevant to determining depreciation under MACRS. A factor relevant to determining depreciation that cannot be revised during an asset's useful life.

Revenue expenditures: Are additional costs of plant assets that do not materially increase the asset's life or its productive capabilities. Are known as balance sheet expenditures because they relate to plant assets. Extend the asset's useful life. Substantially benefit future periods. Are debited to asset accounts when incurred.

Plant assets are defined as: Tangible assets that have a useful life of more than one accounting period and are used in the operation of a business. Current assets. Held for sale. Intangible assets used in the operations of a business that have a useful life of more than one accounting period. Tangible assets used in the operation of business that have a useful life of less than one accounting period.

The calculation of total asset turnover is: Gross profit divided by average total assets. Average total assets divided by gross profit. Net sales divided by average total assets. Average total assets multiplied by net sales. Net assets multiplied by total assets.

The cost of land would not include: Purchase price. Cost of parking lot lighting. Costs of removing existing structures. Fees for insuring the title. Government assessments.

The depreciation method in which a plant asset's depreciation expense for a period is determined by applying a constant depreciation rate to the asset's beginning-of-period book value is called: Book value depreciation. Declining-balance depreciation. Straight-line depreciation. Units-of-production depreciation. Modified accelerated cost recovery system (MACRS) depreciation.

The depreciation method that allocates an equal portion of the total depreciable cost for a plant asset to each unit produced is called: Accelerated depreciation. Declining-balance depreciation. Straight-line depreciation. Units-of-production depreciation. Modified accelerated cost recovery system (MACRS) depreciation.

The depreciation method that charges the same amount of expense to each period of the asset's useful life is called: Accelerated depreciation. Declining-balance depreciation. Straight-line depreciation. Units-of-production depreciation. Modified accelerated cost recovery system (MACRS) depreciation.

The depreciation method that produces larger depreciation expense during the early years of an asset's life and smaller expense in the later years is a(an): Accelerated depreciation method. Book value depreciation method. Straight-line depreciation method. Units-of-production depreciation method. Unrealized depreciation method.

The relevant factors in computing depreciation do not include: Cost. Salvage value. Useful life. Depreciation method. Market value.

The straight-line depreciation method and the double-declining-balance depreciation method: Produce the same total depreciation over an asset's useful life. Produce the same depreciation expense each year. Produce the same book value each year. Are acceptable for tax purposes only. Are the only acceptable methods of depreciation for financial reporting.

The total cost of an asset less its accumulated depreciation is called: Historical cost. Book value. Present value. Current (market) value. Replacement cost.

The useful life of a plant asset is: The length of time it is productively used in a company's operations. Never related to its physical life. Its productive life, but not to exceed one year. Determined by the FASB. Determined by law.

To capitalize an expenditure is to: Selected Answer: Incorrect [None Given] Answers: Debit an expense account. Credit an expense account. Credit the owner's capital account. Credit an asset account. Debit an asset account.

Total asset turnover is used to evaluate: The efficient use of assets to generate sales. The necessity for asset replacement. The number of times operating assets were sold during the year. The cash flows used to acquire assets. The relation between asset cost and book value.