chapter 6: accounting for and presentation of property, plant, and equipment and other noncurrent assets

Question 1

what are noncurrent assests?

Answer 1

land, buildings, equipment, intangible assets, and natural resources.

Question 1

describe the accelerated depreciation method

Answer 1

a method that results in greater depreciation expense in the early periods of an asset’s life than in the later periods o its life; tax benefit

Question 2

why are noncurrent assets considered assets?

Answer 2

1. owned by an organization
2. can generate revenue for more than one year

Question 3

what are the three ways transactions may be separated?

Answer 3

1. Financing (the business)
2. Investments (Long-term revenue generating assets)
3. Operation

Question 4

what is the declining-balance depreciation method?

Answer 4

accelerated depreciation method in which the declining net book value of the asset is multiplied by a constant rate

Question 5

what is a discount rate?

Answer 5

the interest rate used in a present value calculation

Question 6

what is the straight-line depreciation method?

Answer 6

calculation of periodic depreciation expense by dividing the amount to be depreciated by the number of periods over which the asset is to be depreciated

Question 7

what are the primary issues with accounting for noncurrent assets?

Answer 7

accounting for the use (depreciation) of assets; accounting for the maintenance and repair costs; accounting for the disposition of assets

Question 8

what is depreciation?

Answer 8

the allocation of the cost of an asset to the years in which the benefits of the assets (life) are expected to be received; does not reflect decline in value

Question 9

which concept does depreciation follow?

Answer 9

the matching concept

Question 10

when is depreciation recorded?

Answer 10

each fiscal period

Question 11

on what statement is depreciation noted?

Answer 11

income statement

Question 12

why is depreciation on the income statement?

Answer 12

generates revenue

Question 13

explain the flow for depreciation

Answer 13

depreciation expense -> depreciation for current year -> income statement

Question 14

what form of depreciation is reported on the balance sheet?

Answer 14

accumulated depreciation

Question 15

for the straight-line methods, what is the formula?

Answer 15

annual depreciation expense = (cost - estimated salvage value)/estimated useful life

Question 16

what is estimated salvage value

Answer 16

what we expect to sell the machine(s) for at the end of it’s useful life

Question 17

what is the production method

Answer 17

depreciation expense per unit produced = (cost - estimated salvage value)/estimated total united to be made

Question 18

how do you calculate the annual depreciation expense (rate)

Answer 18

depreciation expense per unit produced * number of units produced during the year

Question 19

how do you calculate the the declining balance method?

Answer 19

annual depreciation expense = straight line depreciation rate (=1/life years *2) * book at the beginning year