Question 1

A more comparable measure of profitability than income is return on assets,which equals net income divided by average total assets.

Accepted Answer

Return on assets (ROA) is a measure of profitability that takes into account the assets used to generate that profit. It is calculated by dividing net income by average total assets. This provides a more accurate measure of profitability than just looking at income alone. Therefore, the statement is true.

Question 2

We record a loss if we sell an asset for less than book value.

Accepted Answer

This is true as book value is the value of an asset on the company's balance sheet and if it sells for less than that, it results in a loss.

Question 3

Book value is equal to the original cost of the asset minus the current balance in Accumulated Depreciation.

Accepted Answer

Book value is calculated by subtracting the accumulated depreciation from the original cost of an asset. So, the statement is true.

Question 4

Declining-balance depreciation will be lower than straight-line depreciation in earlier years,but higher in later years.
Declining-balance depreciation will be higher than straight-line depreciation in earlier years,but lower in later years.

Accepted Answer

The answer of Declining-balance depreciation will be lower than straight-line...

Question 5

Profit margin is net income divided by net sales.

Accepted Answer

Profit margin is calculated by dividing net income (profit) by net sales.

Question 6

Most companies use straight-line amortization for intangibles and credit the amount of amortization to the intangible asset account itself rather than to Accumulated Amortization.

Accepted Answer

Straight-line amortization is a method of allocating the cost of an intangible asset over its useful life. Under this method, the same amount of amortization is recorded each year. The amount of amortization is credited to the intangible asset account itself, rather than to Accumulated Amortization. This is because the intangible asset is being reduced in value over time, and the amortization expense reflects this reduction in value.

Question 7

Intangible assets with an indefinite useful life (goodwill and most trademarks)are not amortized.

Accepted Answer

Intangible assets with an indefinite useful life, such as goodwill and most trademarks, are subject to impairment testing rather than amortization. This means that their value is periodically assessed and reduced if necessary, but they are not systematically written down over a set period of time like assets with a definite useful life.

Question 8

The Accumulated Depreciation account allows us to reduce the carrying value of assets through depreciation,while maintaining the original cost of each asset in the accounting records.

Accepted Answer

The purpose of Accumulated Depreciation is to account for the decrease in value of an asset over time due to wear and tear, obsolescence, or other factors. This account is used to reduce the carrying value or book value of an asset, while the original cost of the asset remains the same in the accounting records. Therefore, the statement is true.

Question 9

Straight-line,declining-balance,and activity-based depreciation all are acceptable depreciation methods for both financial reporting and tax reporting.
These are acceptable methods for financial reporting,not tax reporting.Most companies use MACRS for income tax depreciation.

Accepted Answer

Straight-line, declining-balance, and activity-based depreciation are methods that can be used for financial reporting, but for tax reporting, most companies use the Modified Accelerated Cost Recovery System (MACRS), which is a different set of depreciation rules established by the IRS.

Question 10

The service life of an asset is always equal to the full life of the asset.
The service life is how long the company expects to receive benefits from the asset before disposing of it.

Accepted Answer

The statement is false. The service life of an asset may be shorter than its full life due to various factors such as technological advances or changes in the market demand.

Question 11

In an activity-based depreciation method,we allocate an asset's cost based on its use.

Accepted Answer

In activity-based depreciation method, the asset's cost is allocated based on its usage, making it a true statement.

Question 12

When a change in estimate is required,the company changes depreciation in prior,current and future years.
When a change in estimate is required,the company changes depreciation in current and future years,but not in prior periods.

Accepted Answer

The answer of When a change in estimate is required,the...

Question 13

Accumulated Depreciation is a liability account that is increased by credits.
Accumulated Depreciation is a contra-asset account; it reduces an asset account.

Accepted Answer

Accumulated Depreciation is a contra-asset account, not a liability account, and it is increased by credits to reduce the value of the related asset account.

Question 14

Goodwill is amortized over its estimated useful life.
Intangible assets with an indefinite useful life (goodwill and most trademarks)are not amortized.

Accepted Answer

Goodwill is not amortized; instead, it is tested annually for impairment because it is considered to have an indefinite useful life.

Question 15

Straight-line produces a lower net income than accelerated methods in the earlier years of an asset's life.
Straight-line produces a higher net income than accelerated methods in the earlier years of an asset's life.

Accepted Answer

Accelerated methods, such as the double-declining balance or sum-of-the-years'-digits method, allocate more depreciation expense in the earlier years of an asset's life, while straight-line method allocates equal amounts of depreciation expense over the asset's useful life. Therefore, accelerated methods will result in lower net income in the earlier years and higher net income in the later years compared to straight-line method.

Question 16

Residual value,also referred to as salvage value,is the amount the company expects to receive from selling the asset at the end of its service life.

Accepted Answer

Residual value is indeed the amount a company expects to receive from selling the asset at the end of its service life.

Question 17

We record a gain if we sell an asset for less than book value.
We record a gain if we sell an asset for more than book value.

Accepted Answer

We record a gain if we sell an asset for more than book value, and we record a loss if we sell it for less than book value.

Question 18

Straight-line depreciation assumes that the benefits we derive from the use of an asset are the same each year.

Accepted Answer

Straight-line depreciation method assumes that the benefits received from using an asset are the same each year, hence the depreciation expense is calculated based on equal amounts over the asset's useful life.

Question 19

We allocate natural resources to expense through a process known as "depletion."

Accepted Answer

Depletion is the process of allocating the cost of natural resources to expense as they are extracted from the earth or used up.

Question 20

With the straight-line depreciation method,we allocate an equal amount of the depreciable cost to each year of the asset's service life.

Accepted Answer

This is the definition of the straight-line depreciation method.

Quiz 7: Long-Term Assets

A more comparable measure of profitability than income is return on assets,which equals net income divided by average total assets.

We record a loss if we sell an asset for less than book value.

Book value is equal to the original cost of the asset minus the current balance in Accumulated Depreciation.

Declining-balance depreciation will be lower than straight-line depreciation in earlier years,but higher in later years. Declining-balance depreciation will be higher than straight-line depreciation in earlier years,but lower in later years.

Profit margin is net income divided by net sales.

Most companies use straight-line amortization for intangibles and credit the amount of amortization to the intangible asset account itself rather than to Accumulated Amortization.

Intangible assets with an indefinite useful life (goodwill and most trademarks)are not amortized.

The Accumulated Depreciation account allows us to reduce the carrying value of assets through depreciation,while maintaining the original cost of each asset in the accounting records.

Straight-line,declining-balance,and activity-based depreciation all are acceptable depreciation methods for both financial reporting and tax reporting. These are acceptable methods for financial reporting,not tax reporting.Most companies use MACRS for income tax depreciation.

The service life of an asset is always equal to the full life of the asset. The service life is how long the company expects to receive benefits from the asset before disposing of it.

In an activity-based depreciation method,we allocate an asset's cost based on its use.

When a change in estimate is required,the company changes depreciation in prior,current and future years. When a change in estimate is required,the company changes depreciation in current and future years,but not in prior periods.

Accumulated Depreciation is a liability account that is increased by credits. Accumulated Depreciation is a contra-asset account; it reduces an asset account.

Goodwill is amortized over its estimated useful life. Intangible assets with an indefinite useful life (goodwill and most trademarks)are not amortized.

Straight-line produces a lower net income than accelerated methods in the earlier years of an asset's life. Straight-line produces a higher net income than accelerated methods in the earlier years of an asset's life.

Residual value,also referred to as salvage value,is the amount the company expects to receive from selling the asset at the end of its service life.

We record a gain if we sell an asset for less than book value. We record a gain if we sell an asset for more than book value.

Straight-line depreciation assumes that the benefits we derive from the use of an asset are the same each year.

We allocate natural resources to expense through a process known as "depletion."

With the straight-line depreciation method,we allocate an equal amount of the depreciable cost to each year of the asset's service life.