Expense Recognition and Depreciation

Question 1

What are the three approaches to expense recognition?

Answer 1

direct association, immediate recognition and systematic allocation

Question 2

When the cost is directly associated with a specific source of revenue, it falls under the expense recognition type of ________ __________.

Answer 2

direct association

Question 3

When the cost can be associated with the revenues of an accounting period, but not with any specific sales transaction, it falls under the expense recognition type of ________ __________.

Answer 3

immediate recognition

Question 4

When the cost benefits more than one accounting period, not associated with a specific revenue or time period, it falls under the expense recognition type of ________ __________.

Answer 4

systematic allocation

Question 5

COGS and warranty costs are examples of the expense recognition type _______ _____________.

Answer 5

direct association

Question 6

Insurance, utilities, salaries, marketing, research + development are all examples of the expense recognition type ________ ____________.

Answer 6

immediate recognition

Question 7

Depreciation expense and amortization expense are examples of the expense recognition type _________ __________.

Answer 7

systematic allocation

Question 8

In order to record this type of expense recognition, you recognize it at the same time as the related revenue is recognized.

Answer 8

direct association

Question 9

This expense recognition type is recognized in the period incurred.

Answer 9

immediate recognition

Question 10

In order to record this type of expense recognition, you capitalize it as an asset, then later convert it to an expense over the useful life.

Answer 10

systematic allocation

Question 11

What are the three types of depreciation?

Answer 11

straight-line, double declining and units of production

Question 12

What is the equation for straight-line depreciation?

Answer 12

depreciation expense =

(OG cost of (estimated
fixed asset) — salvage value)
_____________________________________

(estimated useful life of asset)

Question 13

True or false: the purpose of depreciation is to reflect the using up of productive capacity of an asset over its useful life.

Answer 13

True

Question 14

True or false: the purpose of depreciation is to reflect the fair market value of an asset.

Answer 14

False

Question 15

What is the straight-line rate?

Answer 15

1 / (useful life)

Question 16

What are the 4 steps of doing a double-declining balance?

Answer 16

1. Calculate the straight-line rate.
2. Multiply by 2.
3. Multiply the doubled rate by the book value of the asset.
4. Depreciate the asset down to the estimated salvage amount.

Question 17

How do you calculate the book value of an asset?

Answer 17

book value =
(asset cost) - (accum. depreciation)

Question 18

What are the 2 steps of doing a units of production depreciation?

Answer 18

1. Take the depreciable base and divide it by the total number of units expected to be processed over the lifetime of the asset.
2. Per year, take the number of units produced and multiply by the rate from #1.

Question 19

How do you calculate the depreciable base?

Answer 19

OG value of the asset - salvage value

Question 20

Total depreciation over the asset’s life is __________ for all methods.

Answer 20

identical

Question 21

Salvage value is the same thing as ______ value.

Answer 21

residual

Question 22

All depreciation methods yield the same ______ ________.

Answer 22

salvage / residual value

Question 23

This depreciation type is typically used with natural resources.

Answer 23

units of production

Question 24

This depreciation type compares time and usage, used with ACTIVITY.

Answer 24

units of production

Question 25

Changes in accounting estimates are used to change the ________ ________ or ________ ________.

Answer 25

useful life or salvage value

Question 26

All changes in accounting estimates are made on a prospective basis, meaning that it only affects _________ periods.

Answer 26

future

Question 27

True or false: Changes in accounting estimates also must affect periods that came prior to the change.

Answer 27

False

Question 28

How do you calculate the book value of an asset?

Answer 28

total cost - accumulated depreciation

Question 29

How to calculate the rate for average cost depreciation?

Answer 29

total cost / total # of units