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Accounting 2810
Chapter 7 Test 3
49
Accounting
03/19/2012

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Term
Other descriptive titles for fixed assets would include
Definition
both plant assets and property, plant, and equipment
Term
a capital expenditure would appear on the
Definition
balance sheet under fixed assets
Term
if a capital expenditure is treated as a revenue expenditure, then
Definition
expenses are overstated and owners' equity is understated
Term
if a revenue expenditure is treated as a capital expenditure, then
Definition
expenses are understated and owners' equity is overstated
Term
which of the following expenditures would NOT be included in the cost of an asset?
Definition
vandalism
Term
a company acquired some land for $80,000 to construct a new office complex. legal fees paid were $2,300, delinquent taxes assumed were $3,400 and $5,850 was paid to remove an old building from which salvaged materials sold for $1,950. What is the cost basis for the land?
Definition
$89,600
Term
all amounts paid to get an asset in place and ready for use are referred to as
Definition
cost of an asset
Term
the removal of an old building to make the land ready for its intended use is charged to
Definition
land
Term
expenditures that add to the utility of fixed assets for more than one accounting period are
Definition
capital expenditures
Term
which of the following should be included in the acquisition of a piece of equipment?
Definition
transportation costs, installation costs, testing costs prior to placing the equipment into production - ALL of these!
Term
which of the following is an example of a capital expenditure?
Definition
replacing an engine in a company car
Term
land improvements include
Definition
fences, trees and shrubs, outdoor lighting - ALL of the above!!
Term
which of the following is NOT a fixed asset?
Definition
land held for investment
Term
book value is defined as
Definition
cost less accumulated depreciation
Term
what type of depreciation occurs when an asset can no longer provide services at the level originally intended?
Definition
functional depreciation
Term
salvage value has a similar meaning as
Definition
both residual value and scrap value
Term
depreciable cost equals
Definition
cost less residual value
Term
which of the following is NOT characteristic of the accumulated depreciation account?
Definition
accumulated depreciation represents cash reserved for asset replacement
Term
which method of depreciation considers residual value in computing the normal periodic depreciation?
Definition
straight-line
Term
the accounting term depreciation measures
Definition
the amount of asset cost allocated to expense over periods benefited
Term
accelerated depreciation is primarily used for
Definition
income tax purposes
Term
recording depreciation
Definition
decreases net income and has no effect on cash flows
Term
to measure depreciation, all of the following must be known EXCEPT
Definition
market value
Term
a machine was purchased for $60,000. it has a useful life of 5 years and a residual value of $6,000. under the straight-line method, what is annual depreciation expense?
Definition
$10,800
Term
equipment was purchased for $18,000. it has a useful life of 5 years and a residual value of $2,000. what is depreciatoin expense for year one under the double-declining-balance method?
Definition
$7,200
Term
computer equipment was acquired at the beginning of the year at a cost of $56,000 with an estimated residual value of $5,000 and an estimated useful life of 5 years. determine the second year's depreciation using straight-line depreciation.
Definition
$10,200
Term
equipment was purchased for $30,000. it has a useful life of 5 years and a residual value of $4,000. what is depreciation expense for year two under the double-declining balance method?
Definition
$7,200
Term
on september 1, a machine with a useful life of 8 years and a residual value of $3,000 was purchased for $47,000. what is depreciation expense in the year of purchase under straight-line depreciation assuming a december 31 year-end?
Definition
$1,833
Term
a machine with a useful life of 10 years and a residual value of $4,000 was purchased for $30,000. what is annual depreciation under the straight-line method?
Definition
$2,600
Term
if a fixed asset with an original cost of $18,000 and accumulated depreciation of $2,000 is sold for $15,000, the company must
Definition
recognize a loss on the income statement under other expenses
Term
if a fixed asset is sold and the book value is less than cash received, the company must
Definition
recognize a gain on the income statement under other revenues
Term
a fixed asset with a cost of $30,000 and accumulated depreciation of $25,000 is sold for $3,500. What is the amount of the gain or loss on disposal of the fixed asset?
Definition
$1,500
Term
a gain is recorded on the sale of fixed assets when
Definition
the asset's book value is less than the cash received
Term
a fully depreciated asset must be
Definition
kept on the books until sold or discarded
Term
a company sold a delivery truck for $18,000 cash. the truck cost $47,500 and had accumulated depreciation of $36,000 as of the date of sale. the entry to record the sale would include
Definition
a gain for $6,500
Term
a company sold office furniture costing $16,500 with accumulated depreciation of $14,000 for $1,800 cash. the entry to record the sale would include
Definition
a loss for $700
Term
a company purchased an oil well for $25 million with a residual value of $500,000. it is estimated that 10 million barrels can be extracted from the well. determine depletion expense assuming 3 million barrels are extracted and sold.
Definition
$7,350,000
Term
the process of transferring the cost of metal ores and other minerals removed from the earth to an expense account is called
Definition
depletion
Term
the drilling company purchased a mining site for $500,000 on July 1, 2010. the company expects to mine ore for the next 10 years and anticipates that a total of 100,000 tons will be recovered. the estimated residual value of the property is $80,000. during 2010 the company extracted 6,500 tons of ore. the depletion expense for 2010 is
Definition
$27,300
Term
goodwill is
Definition
only written down if an impairment in value occurs
Term
which of the following is NOT an intangible asset?
Definition
long-term receivable
Term
which intangible assets are amortized over their useful life?
Definition
patents
Term
intangible assets are used in operations but
Definition
lack physical substance
Term
the exclusive right to use a certain name or symbol is called a
Definition
trademark
Term
NBC company purchased a patent from ABC for $144,000. At the time of purchase the patent had been in existence for 10 years. what is the first year's amortization?
Definition
$14,400
Term
expenditures for research and development are generally recorded as
Definition
current operating expenses
Term
the cost of a patent should be amortized
Definition
over 20 years or its economic life, whichever is shorter
Term
a patent was purchased for $670,000 with a legal life of 20 years. Management estimates that the patent has an 12 year economic life. the entry to record amortization would include
Definition
a decrease in patent for $55,833
Term
fixed assets are ordinarily presented in the balance sheet
Definition
at cost less accumulated depreciation