Chapter 10

Question 1

What is depreciation?

Answer 1

The allocation of the cost of a tangible asset over its useful life.

Question 2

True or False: Depreciation reflects the decrease in value of an asset over time.

Answer 2

True

Question 3

Fill in the blank: The __________ method is one common method of calculating depreciation.

Answer 3

straight-line

Question 4

What does the term ‘impairment’ refer to in accounting?

Answer 4

A permanent reduction in the value of an asset.

Question 5

Multiple choice: Which of the following is NOT a method of depreciation? A) Straight-line B) Declining balance C) Impairment D) Sum-of-the-years’-digits

Answer 5

C) Impairment

Question 6

What is the formula for straight-line depreciation?

Answer 6

(Cost - Salvage Value) / Useful Life

Question 7

True or False: Impairments can be reversed in future accounting periods.

Answer 7

False

Question 8

Fill in the blank: Depletion is primarily used for __________ resources.

Answer 8

natural

Question 9

What are the two main types of depreciation methods?

Answer 9

Accelerated and straight-line.

Question 10

Multiple choice: Which method of depreciation accelerates the expense recognition? A) Straight-line B) Declining balance C) Units of production D) None of the above

Answer 10

B) Declining balance

Question 11

What is salvage value?

Answer 11

The estimated residual value of an asset at the end of its useful life.

Question 12

True or False: Depletion applies to both tangible and intangible assets.

Answer 12

False

Question 13

Fill in the blank: The __________ method of depletion is based on the physical output of the resource.

Answer 13

units-of-production

Question 14

What triggers an impairment review?

Answer 14

A significant decline in the market value of an asset.

Question 15

Multiple choice: Which of the following is a sign of potential impairment? A) Increased demand B) Significant loss in market value C) Extended useful life D) None of the above

Answer 15

B) Significant loss in market value

Question 16

What is the impact of impairment on financial statements?

Answer 16

It reduces the carrying amount of the asset and increases expenses.

Question 17

True or False: The units-of-production method is appropriate for assets that have a predictable usage pattern.

Answer 17

True

Question 18

Fill in the blank: The __________ method of depreciation uses a fixed percentage to calculate annual depreciation.

Answer 18

declining balance

Question 19

What is the primary purpose of calculating depreciation?

Answer 19

To match the expense of using an asset with the revenue it generates.

Question 20

Multiple choice: Which of the following is a characteristic of impairment losses? A) Temporary B) Reversible C) Permanent D) None of the above

Answer 20

C) Permanent

Question 21

What is the role of the IRS in depreciation?

Answer 21

It provides guidelines and rules for tax depreciation.

Question 22

True or False: Depletion is similar to depreciation but applies to intangible assets.

Answer 22

False

Question 23

Fill in the blank: __________ is the process of allocating the cost of natural resources over time.

Answer 23

Depletion

Question 24

What is a common method used for calculating depletion?

Answer 24

Units of production method.

Question 25

Multiple choice: Which of the following assets would use depletion? A) Machinery B) Land C) Oil reserves D) Buildings

Answer 25

C) Oil reserves

Question 26

What is the effect of depreciation on taxable income?

Answer 26

It reduces taxable income by increasing expenses.

Question 27

True or False: The straight-line method results in higher depreciation expense in the early years of an asset's life compared to the declining balance method.

Answer 27

False

Question 28

Fill in the blank: An asset is considered impaired when its __________ exceeds its recoverable amount.

Answer 28

carrying amount

Question 29

What is the primary factor in determining the useful life of an asset?

Answer 29

The period over which the asset is expected to be economically useful.

Question 30

Multiple choice: Which of the following is a factor in calculating depletion? A) Cost of the resource B) Amount extracted C) Remaining reserves D) All of the above

Answer 30

D) All of the above

Question 31

What is the impact of an impairment loss on equity?

Answer 31

It decreases equity due to increased expenses.

Question 32

True or False: Depreciation is a cash expense.

Answer 32

False

Question 33

Fill in the blank: __________ is the systematic allocation of the cost of a tangible asset over its useful life.

Answer 33

Depreciation

Question 34

What is the main distinction between depreciation and depletion?

Answer 34

Depreciation applies to tangible assets, while depletion applies to natural resources.

Question 35

Multiple choice: Which of the following is NOT a characteristic of depreciation? A) It is a non-cash expense B) It reduces taxable income C) It has a salvage value D) It only applies to intangible assets

Answer 35

D) It only applies to intangible assets

Question 36

What does it mean for an asset to be 'fully depreciated'?

Answer 36

It means the asset's book value has been reduced to its salvage value.

Question 37

True or False: An impairment loss can be recognized even if the asset is still in use.

Answer 37

True

Question 38

Fill in the blank: The __________ method of depreciation is commonly used for tax purposes.

Answer 38

MACRS

Question 39

What is the purpose of impairment testing?

Answer 39

To determine if an asset's carrying amount exceeds its recoverable amount.

Question 40

Multiple choice: What is the term for the amount an asset can be sold for at the end of its useful life? A) Carrying amount B) Salvage value C) Depreciation D) Impairment

Answer 40

B) Salvage value

Question 41

What is the impact of depletion on the balance sheet?

Answer 41

It reduces the value of the natural resource asset over time.

Question 42

True or False: All fixed assets must be depreciated.

Answer 42

True

Question 43

Fill in the blank: The __________ method is used when the asset is expected to be used more in certain periods than others.

Answer 43

accelerated

Question 44

What is the difference between book value and fair value?

Answer 44

Book value is the recorded value of an asset, while fair value is the estimated market value.

Question 45

Multiple choice: Which accounting principle requires the use of depreciation? A) Matching principle B) Revenue recognition C) Cost principle D) Conservatism

Answer 45

A) Matching principle