ACCT 2010 Exam #3 with 100%
Correct Answers
Depreciation - ANSWER--Land is only plant asset on deprecated(unlimited useful life)
-allocation of land asset's cost to expense over its life
-Supports matching principle
The carrying value of bonds payable equals - ANSWER-Bonds Payable-Discount on
Bonds Payable
2 major parts of Stockholder's equity - ANSWER-1) Paid-in capital- amount
stockholders have contributed
2) Retained Earnings-amount earned by profitable operations
Characteristics of Preferred Stocks - ANSWER--Advantages: Receive dividends first,
recieve assets first in liquidation
-Shareholders earn a fixed dividend
-Very few corporations issue
Measuring the cost of a Plant Asset - ANSWER-Sum of all costs incurred to bring the
asset to its intended use
Cost of a plant asset: Equipment (6 parts) - ANSWER-1) Purchase price(after
discounts)
2)Transportation
3) Insurance
4)Sales and other taxes
5)Purchase commission
6) Installation and testing
Cost of a plant asset: Land (5 parts) - ANSWER-1)Purchase price
2)Commissions
3) Survey and legal fees
4) Back property taxes paid
5) Grading and removing unwanted buildings
Lump-Sum Basket Purchases - ANSWER--Several assets purchased in a group at one
price
-Total cost is allocated based on their market values
Depreciation IS NOT - ANSWER--a process of valuation
, -setting aside cash to replace assets as they wear out
Matching Principle - ANSWER-Recording estimated warranty expense in the current
year
Also called expense recognition
The depreciation process attempts to match the: - ANSWER-revenues earned by the
asset and the cost of the asset
Where is the depreciation expense recorded? - ANSWER-Income statement
Entry to record deprication - ANSWER-D: Depreciation expense
C: Accumulated Depreciation
Book Value of a plant asset - ANSWER-=Asset's cost-Accumulated Depreciation
When an asset is fully depreciated, does the book value equal to residual/salvage
value? - ANSWER-Yes
Straight-line Depreciation method - ANSWER--Annual Depreciation Expense=
(Cost-Residual value)/(Useful life, in years)
-Equal amount of depreciation is assigned to each year
-Best for assets that generate revenue evenly
-Best meets matching principle
As accumulated depreciation increases..... - ANSWER-Book value decreases
Units of Production Depreciation Method - ANSWER-(Cost-Residual Value)/Useful life
in units= Depreciation per unit>>
- Dep. per unit X Activity for period(units)= Depreciation Expense
-UOP doesn't depend on time like other methods
-Best for assets that wear out because of use
Double Declining Balance Method - ANSWER--most frequently used accelerated sep.
method
-best for assets that generate revenue early in useful life
-(Straight-line rate x 2) x (Cost-accumulated depreciation)
DDB Rate - ANSWER--Straight-line rate times 2
or
-2/life in years
Residual value: DDB - ANSWER--ignored until final year
-Final year depreciation=book value at beg. of year- Residual Value
Correct Answers
Depreciation - ANSWER--Land is only plant asset on deprecated(unlimited useful life)
-allocation of land asset's cost to expense over its life
-Supports matching principle
The carrying value of bonds payable equals - ANSWER-Bonds Payable-Discount on
Bonds Payable
2 major parts of Stockholder's equity - ANSWER-1) Paid-in capital- amount
stockholders have contributed
2) Retained Earnings-amount earned by profitable operations
Characteristics of Preferred Stocks - ANSWER--Advantages: Receive dividends first,
recieve assets first in liquidation
-Shareholders earn a fixed dividend
-Very few corporations issue
Measuring the cost of a Plant Asset - ANSWER-Sum of all costs incurred to bring the
asset to its intended use
Cost of a plant asset: Equipment (6 parts) - ANSWER-1) Purchase price(after
discounts)
2)Transportation
3) Insurance
4)Sales and other taxes
5)Purchase commission
6) Installation and testing
Cost of a plant asset: Land (5 parts) - ANSWER-1)Purchase price
2)Commissions
3) Survey and legal fees
4) Back property taxes paid
5) Grading and removing unwanted buildings
Lump-Sum Basket Purchases - ANSWER--Several assets purchased in a group at one
price
-Total cost is allocated based on their market values
Depreciation IS NOT - ANSWER--a process of valuation
, -setting aside cash to replace assets as they wear out
Matching Principle - ANSWER-Recording estimated warranty expense in the current
year
Also called expense recognition
The depreciation process attempts to match the: - ANSWER-revenues earned by the
asset and the cost of the asset
Where is the depreciation expense recorded? - ANSWER-Income statement
Entry to record deprication - ANSWER-D: Depreciation expense
C: Accumulated Depreciation
Book Value of a plant asset - ANSWER-=Asset's cost-Accumulated Depreciation
When an asset is fully depreciated, does the book value equal to residual/salvage
value? - ANSWER-Yes
Straight-line Depreciation method - ANSWER--Annual Depreciation Expense=
(Cost-Residual value)/(Useful life, in years)
-Equal amount of depreciation is assigned to each year
-Best for assets that generate revenue evenly
-Best meets matching principle
As accumulated depreciation increases..... - ANSWER-Book value decreases
Units of Production Depreciation Method - ANSWER-(Cost-Residual Value)/Useful life
in units= Depreciation per unit>>
- Dep. per unit X Activity for period(units)= Depreciation Expense
-UOP doesn't depend on time like other methods
-Best for assets that wear out because of use
Double Declining Balance Method - ANSWER--most frequently used accelerated sep.
method
-best for assets that generate revenue early in useful life
-(Straight-line rate x 2) x (Cost-accumulated depreciation)
DDB Rate - ANSWER--Straight-line rate times 2
or
-2/life in years
Residual value: DDB - ANSWER--ignored until final year
-Final year depreciation=book value at beg. of year- Residual Value
