Chapter 6

Question 1

Assets that are used for two or more accounting periods are

Answer 1

long’operation assets

Question 2

The term used to recognize expense for property, plant, and equipment is

Answer 2

Depreaciation

Question 3

Natural resources are normally classified as

Answer 3

Long’term assets

Question 4

The term used when recognizing expense for intangible assets with identifiable useful lives is

Answer 4

Amortization

Question 5

Assets that are used relatively quickly (within a single accounting period) are called short-term or

Answer 5

Current assets

Question 6

The purchase price plus any costs necessary to get an asset in the location and condition for its intended use is called the

Answer 6

Historical cost concept

Question 7

Although they may be represented by physical documents, ____ assets are, rights or privileges that cannot be seen or touched.

Answer 7

Intangible

Question 8

The cost of a building includes

Answer 8

Purchase price
Sales taxes
Title search and transfer document costs
realtor’s and attorneys deed
Cost for removal of old building
Grading costs
Renovation costs

Question 9

Property, plant and equipment is sometimes called plant assets or

Answer 9

fixed assets

Question 10

Acquiring a group of assets in a single transaction is known as a(n)

Answer 10

basket purchase

Question 11

Natural resources include ______

Answer 11

timber
glod mine
tone quarry

Question 12

Intangible assets with an identifiable useful life include

Answer 12

patents and copyrights

Answer 13

100,000 ÷ $500,000 × $460,000 = 92,000 for land
400,000 ÷ $500,000 × $460,000 = 368,000 for the building

Question 14

An asset must be recorded at the amount paid for it under the Blank______ concept.

Answer 14

Historical cost

Question 15

Cost of Land

Answer 15

Purchase price
Sales taxes
title search and transfer doc costs
Realtor’s and attorny’s fees
Cost for removal of old buildings
Grading costs

Question 16

When assets are acquired in a basket purchase, accountants commonly allocate the purchase price using the relative

Answer 16

Fair market value method

Question 17

The depreciable cost of an asset is the cost of the asset

Answer 17

minus the salvage value

Question 18

The term used to recognize expense for natural resources is

Answer 18

Depletion

Question 19

The Black Limo Company (BLC) purchased a limo on January 1 of Year 1. The limo cost $48,000. It had an expected useful life of 4 years and a $8,000 salvage value. Assuming BLC uses straight-line depreciation, depreciation expense for Year 1 is $

Answer 19

(48000 - 8000)/4 = 10000

Question 20

Buck Company purchased a computer and a desk for $9,000 cash. An appraiser determined the fair market values to be $3,000 for the computer and $7,000 for the desk. Based on this information, the assets should be recorded as $

Answer 20

1. Determine percentages
   3000/10000=0.30
   7000/10000 =0.70
2. Allocation
   0.30 * 9000 = 2700
   0.70 * 9000 = 6300

Question 21

The purchase price plus any costs necessary to get an asset in the location and condition for its intended use is called the

Answer 21

historical cost

Question 22

The book value of a long-term tangible asset is determined by

Answer 22

substracting the balance in the accumulated depreciation account from the balance in the associated asset account

Question 23

Cost of equipment

Answer 23

1 - purchase price
2 - sales taxes
3 - delivery costs
4 - installation costs
5 - costs to adapt for intended use

Question 24

Recognizing depreciation expense affects the

Answer 24

income statement
balnce sheet

Question 25

The salvage value of an asset is the

Answer 25

Expected maket value of a fully depreciated asset

Question 26

The Black Limo Company (BLC) purchased a limo on January 1 of Year 1. The limo cost $48,000 cash. It had an expected useful life of 4 years and a $8,000 salvage value. Assuming BLC uses straight-line depreciation, cash flow from operating activities shown on the Year 2 statement of cash flows is

Answer 26

1 - Find depreciation expense
(48000 - 8000)/4 = 10000
2- Find book value
48000 - 10000 = 38000

0 because the cash paid for the limo was shown on the Year 1 cash statement as an investing activity. There is no cash flow associated with depreciation

Question 27

Because the double-declining balance method recognizes depreciation expense faster than straight-line, it is called a(n)

Answer 27

Accelerated depreciation method

Question 28

Lopez Company purchased land and a building for $460,000. A real estate appraiser determined the fair market value was $100,000 for the land and $400,000 for the building. Based on this information, Lopez should record the land cost as

Answer 28

$100,000 ÷ $500,000 × $460,000 = $92,000 for land and
$400,000 ÷ $500,000 × $460,000 = $368,000 for the building

Question 29

The Black Limo Company (BLC) purchased a limo on January 1 of Year 1. The limo cost $48,000. It had an expected useful life of 4 years and a $8,000 salvage value. Assuming BLC uses double-declining-balance depreciation, depreciation expense for Year 2 is

Answer 29

1 - Staight-line rate = 1/4 = 0.25
2 - Determine the double-declining-balance rate = 0.25 * 2 = 50
3 - Determine the depreciation expense
year 1 = 48000 * 0.5 = 24000
year 2 = (48000 - 24000) * 0.5 = 12000

Question 30

Carrying value is another term used for the

Answer 30

book value of a long-term tangible asset

Question 31

When a company expects heavy asset use and high revenues in the early years of an asset’s life and lower revenues and use in the later years, the best depreciation method to smooth out the amount of net income reported each year is

Answer 31

Double-declining balance

Question 32

When a company recognizes depreciation expense

Answer 32

decreases assets and stk equity
increases expense
lowers income statement
increases accumulated depreciation

Question 33

When revenues fluctuate from year to year, the best depreciation method to achieve the matching objective is

Answer 33

units-of-production

Question 34

The Black Limo Company (BLC) purchased a limo on January 1 of Year 1. The limo cost $48,000. It had an expected useful life of 4 years and a $8,000 salvage value. Assuming BLC uses straight-line depreciation, accumulated depreciation shown on the Year 2 balance sheet is

Answer 34

($48,000 cost - $8,000) ÷ 4 = $10,000 per year. The accumulated depreciation account accumulates from year to year. At the end of Year 2, the balance in the account is $20,000 ($10,000 from Year 1 + $10,000 from Year 2).

Question 35

The Black Limo Company (BLC) purchased a limo on January 1 of Year 1 at a cost of $48,000. The limo had a $8,000 salvage value. BLC expected to drive the limo for 100,000 miles before disposing of it. Actual miles driven per year were as follows: 30,000 in Year 1, 40,000 in Year 2, 20,000 in Year 3, and 25,000 in Year 4. Based on this information, depreciation expense for Year 4 was

Answer 35

($48,000 cost - $8,000 salvage) ÷ 100,000 miles = $0.40 per mile; At the end of Year 3, accumulated depreciation is 90,000 miles × $0.40 or $36,000, so only $4,000 of expense is recorded for Year 4.

Question 36

Which depreciation methods always recognizes more depreciation in the early years of an asset’s useful life and less depreciation in the later years of its useful life?

Answer 36

double-declining balance

Question 37

The Black Limo Company (BLC) purchased a limo on January 1 of Year 1. The limo cost $48,000. It had an expected useful life of 4 years and a $8,000 salvage value. Assuming BLC uses double-declining-balance depreciation, depreciation expense for Year 1 is

Answer 37

($48,000 cost - $0 accumulated depreciation) × 50% = $24,000 Year 1

Question 38

True Stories Company sold the rights to a documentary film. They are expecting significant revenue in Year 1. The revenue stream is expected to decrease steadily until it reaches zero in Year 5. Based on this Which depreciation method should be used to most closely match the expense to the revenue stream the asset produces?

Answer 38

Double-declining balance

Question 39

Depreciation expense is based on actual asset usage when using

Answer 39

Units-of-production only

Question 40

Long term assets

Answer 40

Coal mine
Office equipment
Copyright
Delivery van
Land used in the business
Goodwill
Filing cabinet
Tax library of accounting firm

Question 41

Long term operation assets

Answer 41

Goodwill: intagible

Question 42

Carver Incorporated purchased a building and the land on which the building is situated for a total cost of $700,000 cash. The land was appraised at $320,000 and the building at $480,000.

Answer 42

What is the accounting term for this type of acquisition?
Basket purchase