Question 1

The _____ method divides the acquisition cost of an asset (including the cost to dismantle and retire) less its estimated salvage value by the estimated service life to calculate depreciation or amortization.
A)straight-line
B)sum-of-the-years'-digits
C)double declining balance method
D)accelerated depreciation
E)decelerated depreciation

Accepted Answer

The straight-line method is the one described in the prompt, and is a common method for calculating depreciation or amortization. The other methods listed (B, C, D, E) are all alternative methods used for calculating depreciation with different formulas and assumptions.

Question 2

Eaton Company has some assets that provide more and better services in the early years of their lives and require increasing amounts of maintenance as they grow older.The _____ method(s), which recognize larger depreciation charges in early years and smaller depreciation charges in later years, can be justified.
A)declining-balance
B)accelerated depreciation
C)sum-of-the-years'-digits
D)all of the above
E)none of the above

Accepted Answer

The declining-balance, accelerated depreciation, and sum-of-the-years'-digits methods all recognize larger depreciation charges in the early years and smaller charges in the later years, making them suitable for assets that provide more benefits early on and require more maintenance as they age.

Question 3

Depreciation and amortization affect both net income reported in the financial statements and taxable income on tax returns. Which of the following is /are true?
A)Taxing authorities in most jurisdictions specify allowable depreciation methods for tax reporting.
B)When permitted to do so by the taxing authority, firms often use different depreciation methods for financial and tax reporting.
C)The difference between depreciation expense in the financial statements and the depreciation deduction on the tax return leads to an issue in accounting for income taxes.
D)all of the above
E)none of the above

Accepted Answer

All of the statements are true. Taxing authorities usually specify the allowable depreciation methods for tax reporting, but firms may choose to use different methods for financial and tax reporting if permitted by the taxing authority. The difference between depreciation expense in the financial statements and the depreciation deduction on the tax return can lead to differences in taxable income and accounting for income taxes.

Question 4

The entry to record periodic depreciation of $4,500 on office facilities is as follows:
A) Depreciation (or Administrative) Expense . . . . . . . . .   4,500 
  Accumulated Depreciation . . . . . . . . . . . . . . . . . . . 4,500 
B) Accumulated Depreciation . . . . . . . . . . . . . . . 4,500 
  Depreciation (or Administrative) Expense . . . . . . . . . . . . . 4,500 
C) Depreciation (or Administrative) Expense . . . . . . . . . . . .   4,500 
  Office Facilities . . . . . . . . . . . . . . . . . . . 4,500 
D) Office Facilities . . . . . . . . . . . . . . . . 4,500 
  Depreciation (or Administrative) Expense . . . . . . . . . . 4,500 
E) none of the above

Accepted Answer

The correct entry to record depreciation involves debiting the Depreciation Expense account and crediting the Accumulated Depreciation account. This reflects the expense recognition and the accumulation of depreciation over time, without reducing the original cost of the asset directly.

Question 5

The original depreciation or amortization schedule for long-lived assets sometimes requires changing.Which of the following is/are not true?
A)Each period a firm must evaluate its estimates of service life and assess if these estimates require changing in light of new information.
B)Each period a firm must evaluate its estimates of salvage value and assess if these estimates require changing in light of new information.
C)The firm makes no adjustment for the inaccurate estimates but spreads the remaining carrying value less the new estimate of salvage value over the new estimate of the remaining service life of the asset.
D)If changing from the old estimates to the new estimates would have a material impact, the firm must change the depreciation or amortization schedule retroactively.
E)none of the above

Accepted Answer

The correct process for adjusting depreciation or amortization schedules for long-lived assets involves changing the estimates going forward, not retroactively. When a firm identifies that its estimates of service life or salvage value have changed, it adjusts the depreciation or amortization schedule for the future, spreading the remaining carrying value (less any revised salvage value) over the new estimated remaining service life. There is no requirement to adjust past financial statements retroactively.

Question 6

The amortization of a customer list are
A)product costs.
B)period costs.
C)not required under U.S.GAAP.
D)not required under IFRS.
E)pay back costs.

Accepted Answer

The amortization of a customer list is considered a period cost, as it is a cost that is spread out over a period of time and not directly associated with the production or sale of a product. This cost is required to be amortized under U.S.GAAP but may not be required under IFRS. It is not equivalent to pay back costs, which typically refer to the costs associated with paying back a loan or investment.

Question 7

The recording of amortization of intangibles generally results in a
A)credit directly to the asset account that is being amortized.
B)debit directly to the asset account that is being amortized.
C)credit a contra-asset account called Accumulated Amortization.
D)debit a contra-asset account called Accumulated Amortization.
E)none of the above

Accepted Answer

The answer of The recording of amortization of intangibles generally...

Question 8

Depreciation of factory buildings and equipment used in manufacturing operations become(s)
A)part of the cost of work-in-process inventories.
B)part of the cost of finished goods inventories.
C)product costs.
D)all of the above.
E)none of the above.

Accepted Answer

Depreciation of factory buildings and equipment used in manufacturing operations is considered a product cost, which becomes part of the cost of work-in-process inventories, finished goods inventories, and eventually the cost of goods sold when the finished goods are sold. Therefore, all of the given options are correct in this context.

Question 9

Alpha Corporation acquired a patent for $60,000 which has an expected service life of five years and zero salvage value. The annual amortization is
A)$5,000.
B)$6,000.
C)$12,000.
D)$24,000.
E)$30,000.

Accepted Answer

The annual amortization is calculated by dividing the cost of the patent by its expected service life. $60,000 / 5 years = $12,000 per year.

Question 10

If permitted a choice of depreciation methods for tax reporting, a firm should try to maximize the amount of the
A)reductions in tax payments from claiming depreciation.
B)present value of the reductions in tax payments from claiming depreciation.
C)future value of the reductions in tax payments from claiming depreciation.
D)present value of the increase in tax payments from claiming depreciation.
E)amount of the increase in tax payments from claiming depreciation.

Accepted Answer

Maximizing the present value of the reductions in tax payments from claiming depreciation would result in the highest benefit for the company. This is because the present value takes into account the time value of money, and therefore, receiving larger tax savings earlier is more beneficial than the same amount of tax savings spread out over a longer period.

Question 11

Recording periodic depreciation and amortization results in a
A)debit to an expense account, only
B)debit to a product cost account, only.
C)debit to either an expense account or a product cost account.
D)credit to either an expense account or a product cost account.
E)credit to an expense account, only.

Accepted Answer

Periodic depreciation and amortization can result in a debit to either an expense account (such as depreciation expense) or a product cost account (such as cost of goods sold). The exact account used depends on the nature of the asset being depreciated or amortized and how it is used in the business. However, it would not result in a credit to an expense account or a debit to a product cost account, as suggested by options D and B, respectively. Option A is also incorrect as periodic depreciation and amortization can result in debits to both expense and product cost accounts. Option E is not correct as a credit would only occur if the asset was impaired or sold.

Question 12

The entry to record amortization of a customer list in the amount of $4,500 is as follows:
A)Amortization (or Selling) Expense ................4,500 
Customer List ...........................4,500
B)Finished Goods Inventory .....................4,500 
Customer List ..............................4,500
C)Work-in-Process Inventory ................. 4,500 
Customer List .......................4,500
D)Amortization (or Selling) Expense ..........4,500 
Allowance for Amortization of Customer List ..............4,500
E)Work-in-Process Inventory ................ 4,500 
Allowance for Amortization of Customer List ...............4,500

Accepted Answer

Amortization (or Selling) Expense is the account used to record the periodic amortization of intangible assets like customer lists. Customer List account should be debited for $4,500, representing the amount of amortization.

Question 13

Estimating _____ presents the most difficult task in the depreciation and amortization calculation.A change in this estimate will change the depreciation and amortization amounts going forward.
A)disposal costs
B)salvage value
C)acquisition costs
D)service lives
E)ordinary wear and tear from use

Accepted Answer

Service life refers to the length of time an asset is expected to be used before being disposed of or replaced. It is difficult to estimate the service life accurately because it depends on several factors such as physical wear and tear, technological obsolescence, and economic factors. A change in service life will impact the depreciation and amortization amounts going forward.

Question 14

When taxing authorities permit a choice among alternative depreciation methods, a firm should choose the alternative that allows it to pay the _____ amount of tax, as _____ as possible, within the law.
A)most; early
B)most; late
C)least; early
D)least; late
E)same; often

Accepted Answer

The correct choice is to pay the least amount of tax as late as possible within the law. This approach maximizes the time value of money, allowing the firm to use or invest the money that would have been paid in taxes for as long as possible before it is due.

Question 15

The entry to record patent amortization of $4,500 embedded in a product is as follows:
A)Work-in-Process Inventory .................... 4,500 
Patent ................4,500
B)Finished Goods Inventory ..................4,500 
Patent ..................4,500
C)Work-in-Process Inventory ............. 4,500 
Allowance for Amortization of Patent ................4,500
D)Finished Goods Inventory ...............4,500 
Allowance for Amortization of Patent ................4,500
E)none of the above

Accepted Answer

The answer of The entry to record patent amortization of...

Question 16

The method of depreciation for assets whose utilization is not uniform over time is the _____ method.
A)Accelerated
B)Decelerated
C)Straight-Line (Time)
D)Straight-Line (Use)
E)Sum-of-the-years'-digits

Accepted Answer

The Straight-Line (Use) method, also known as the units of production method, is used for assets whose utilization varies significantly over time, as it bases depreciation on the actual usage of the asset.

Question 17

Dickinson Company owns a delivery truck that costs $108,000, has an estimated salvage value of $8,000, and will provide 200,000 miles of use before retirement.If the truck operates 24,000 miles in a given year, the straight-line (use) depreciation charge is
A)$6,000
B)$12,000
C)$12,960
D)$24,000
E)$0

Accepted Answer

The answer of Dickinson Company owns a delivery truck that...

Question 18

U.S.GAAP authoritative guidance requires that financial statements report depreciation charges based on _____ estimates; in practice, the _____ method is the most common.
A)aggressive; straight-line (time)
B)reasonable; straight-line (time)
C)aggressive; straight-line (use)
D)reasonable; straight-line (use)
E)reasonable; accelerated

Accepted Answer

U.S. GAAP requires that depreciation charges be based on reasonable estimates, and in practice, the straight-line method (based on time) is the most commonly used approach for reporting depreciation in financial statements.

Question 19

Marley Corporation has a machine which costs $10,000, has an estimated salvage value of $400, and has an expected service life of five years. The straight-line (time) method annual depreciation is
A)$960.
B)$1,400.
C)$1,500.
D)$1,920.
E)$2,000.

Accepted Answer

The answer of Marley Corporation has a machine which costs...

Question 20

The Work-in-Process Inventory account is _____.Product costs accumulate in the Work-in-Process Inventory account until the firm completes the goods and transfers them to _____.
A)an asset; Finished Goods Inventory
B)a liability; Finished Goods Inventory
C)an asset; Cost of Goods Sold
D)a liability; Cost of Goods Sold
E)produced capital; Cost of Goods Sold

Accepted Answer

The Work-in-Process Inventory account is classified as an asset since it represents the value of products that have been partially completed but not yet transferred to Finished Goods Inventory. As the firm completes the goods, their cost is transferred from the Work-in-Process Inventory account to the Finished Goods Inventory account, which is also an asset. Once the goods are sold, their cost is transferred from Finished Goods Inventory to the Cost of Goods Sold account, which is an expense account. Therefore, choice A) is the correct answer.

Quiz 10: Long-Lived Tangible and Intangible Assets

The _____ method divides the acquisition cost of an asset (including the cost to dismantle and retire) less its estimated salvage value by the estimated service life to calculate depreciation or amortization.

Depreciation and amortization affect both net income reported in the financial statements and taxable income on tax returns. Which of the following is /are true?

The entry to record periodic depreciation of $4,500 on office facilities is as follows:

The original depreciation or amortization schedule for long-lived assets sometimes requires changing.Which of the following is/are not true?

The amortization of a customer list are

The recording of amortization of intangibles generally results in a

Depreciation of factory buildings and equipment used in manufacturing operations become(s)

Alpha Corporation acquired a patent for $60,000 which has an expected service life of five years and zero salvage value. The annual amortization is

If permitted a choice of depreciation methods for tax reporting, a firm should try to maximize the amount of the

Recording periodic depreciation and amortization results in a

The entry to record amortization of a customer list in the amount of $4,500 is as follows:

Estimating _____ presents the most difficult task in the depreciation and amortization calculation.A change in this estimate will change the depreciation and amortization amounts going forward.

When taxing authorities permit a choice among alternative depreciation methods, a firm should choose the alternative that allows it to pay the _ amount of tax, as _ as possible, within the law.

The entry to record patent amortization of $4,500 embedded in a product is as follows:

The method of depreciation for assets whose utilization is not uniform over time is the _____ method.

Dickinson Company owns a delivery truck that costs $108,000, has an estimated salvage value of $8,000, and will provide 200,000 miles of use before retirement.If the truck operates 24,000 miles in a given year, the straight-line (use) depreciation charge is

U.S.GAAP authoritative guidance requires that financial statements report depreciation charges based on _ estimates; in practice, the _ method is the most common.

Marley Corporation has a machine which costs $10,000, has an estimated salvage value of $400, and has an expected service life of five years. The straight-line (time) method annual depreciation is

The Work-in-Process Inventory account is _.Product costs accumulate in the Work-in-Process Inventory account until the firm completes the goods and transfers them to _.