ACCT 2010 Exam 3 Practice Questions and Solutions
Depreciation -Land is only plant asset on deprecated(unlimited useful life) -allocation of land asset's cost to expense over its life -Supports matching principle Measuring the cost of a Plant Asset Sum of all costs incurred to bring the asset to its intended use Cost of a plant asset: Equipment (6 parts) 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) 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 -Several assets purchased in a group at one price -Total cost is allocated based on their market values Depreciation IS NOT -a process of valuation -setting aside cash to replace assets as they wear out Matching Principle Recording estimated warranty expense in the current year Also called expense recognition The depreciation process attempts to match the: revenues earned by the asset and the cost of the asset Where is the depreciation expense recorded? Income statement Entry to record deprication D: Depreciation expense C: Accumulated Depreciation Book Value of a plant asset =Asset's cost-Accumulated Depreciation
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