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Intermediate Accounting Chapter 11 Quiz

Terms in this set (20)

Which one of the following statements is NOT true?
A. the service life of an asset is the measure of the number of years of service expected from the asset before its disposal
B. the cost of an asset includes all acquisition costs necessary to obtain the benefits to be derived from the asset
C. the residual value of an asset is the difference between the expected book value of the asset at the end of its service and the costs of disposal
D. depreciation is the process of allocating the purchase price of an asset minus its residual value to expense for each period benefited by the asset
C. this residual value of an asset is the difference between the expected book value of the asset at the end of its service and the costs of disposal
The service life of an asset may be measured by all of the following EXCEPT
A. units of output
B. units of time
C. units of activity
D. units of input
D. units of input
What type of cost allocation must a company use?
A. systematic, rational, and reliable
B. rational
C. systematic and rational
D. systematic
C. systematic and rational
The factors involved in computing periodic depreciation charges for an asset do NOT include the
A. service life
B. residual value of the asset
C. method of cost allocation
D. current value of the asset
D. current value of the asset
How can service life be measured?
A. units of time
B. units of output
C. units of activity
D. all of these answer choices can be used to measure service life
D. all of these answer choices can be used to measure service life
What determines residual value?
A. IFRS
B. FASB
C. GAAP for each class of asset
D. company policy
D. company policy
Which depreciation method ignores residual value when computing the depreciable base of an asset?
A. double-declining-balance
B. group method
C. composite method
D. sum-of-the-years'-digits method
A. double-declining-balance method
Which of the following depreciation methods should be used when the expected benefits to be received from an asset will decline each period?
A. sum-of-the-years'-digits method
B. compound-interest method
C. straight-line method
D. units of production method
A. sum-of-the-years'-digits method
Which depreciation method calculates annual depreciation expense based on the book value of the asset?
A. inventory systems method
B. group method
C. double-declining balance method
D. sum-of-the-years'-digits method
C. double declining balance method
Many companies that use the declining-balance method of depreciation switch to the straight-line method at some point in the life of a depreciable asset. When does that switch normally occur?
A. in the last quarter of the life of the asset
B. midpoint in the life of the asset
C. never, since one method must be applied consistently throughout the life of an asset
D. when the deprciation cost under the accelerated method exceeds the depreciation cost under the straight-line method
B. midpoint in the life of the asset
A student is defending a certain depreciation method. She uses the argument that repairs and maintenance costs will probably increase as the asset gets older. she also argues that the asset will produce less as it gets older. What depreciation method is she probably defending?
A. straight-line
B. sinking-fund method
C. activity method
D. sum-of-the-years'-digits method
D. sum-of-the-years'-digits method
Which of the following is NOT a factor in selecting a depreciation method?
A. salvage value
B. the risk associated with the cash flows from the asset
C. financial statement effects
D. repair and maintenance costs
A. salvage value
Which one of the following statements is true?
A. GAAP requires the use of either straight-line of declining-balance depreciation
B. typically, the sum-of-the-years'-digits method will result in less depreciation expense in the year of acquisition than will the double declining balance method
C. Straight-line depreciation results in a decreasing rate of return on total assets
D. one objective of depreciating an asset is to provide funds for replacement
B. typically, the sum of the years' digits method will result in less depreciation expense in the year of acquisition than will the double declining balance method
When low-cost depreciable assets with similar characteristics, service lives, and residual values are acquired, which depreciation method should be used?
A. such assets should not be depreciated
B. impairment depreciation
C. group depreciation
D. composite depreciation
C. group depreciation
Which one of the following statements about group depreciation is true?
A. onle one accumulated depreciation account is necessary for the whole group
B. when assets are sold, losses will be recognized, but not gains
C. different assets in the group will have different depreciation rates
D. this method is used for groups of dissimilar assets
A. only one accumulated depreciation account is necessary for the whole group
An impairment loss must be recognized when
A. an asset's book value is higher than its fair value
B. the present value of teh asset's future cash flows is lower than the asset's fair value
C. an asset's book value is lower than its fair value
D. the present value of the asset's future cash flows is higher than the asset's fair value
A. an asset's book value is higher than its fair value
The FASB established principles for evaluating asset impairment because it hoped financial reporting would
A. present information that is expected to be more relevant
B. be enhanced through increasing the usefulness of a company's financial statements
C. improve comparability across companies
D. all of these choices are reasons that FASB established principles for evaluating asset impairment
D. all of these choices are reasons that FASB established principles for evaluating asset impairment
Which of the following is NOT considered involuntary disposal?
A. exchange
B. earthquake
C. fire
D. expropriation by the government
A. exchange
Depletion of a natural resource is typically recorded as a
A. debit to Accumulated Depreciation
B. debit to Depletion Expense
C. debit to an inventory account
D. debit to Cost of Goods Sold
C. debit to an inventory account
Tangible assets that are attached to natural resources are depreciated over
A. the life of the tangible asset
B. the shorter of the tangible asset's life or the natural resource's life
C. the longer of the tangible asset's life or the natural resource's life
D. the life of the natural resource
B. the shorter of the tangible asset's life or the natural resource's life
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