ACCT 2110 MILLER EXAM 4 QUESTIONS WITH
VERIFIED ACCURATE ANSWERS
accumulated depreciation - Answers -the total amount of depreciation expense that has
been recorded for an asset since the asset was acquired (recorded on balance sheet as
contra-asset)
amortization - Answers -- cost of intangible asset with finite life is allocated to acct
periods over the life of the asset to reflect the decline in service potential
- most companies will amortize on straight-line basis over the shorter of the econ or
legal life of an asset
book value - Answers -cost of the asset - acc. depreciation
- reported on the balance sheet and is usually quite different from the market value
calculating depreciation - Answers -need to know:
- cost of the fixed asset
- useful life (or expected life) of the fixed asset
- residual value (salvage value) of the fixed asset
these are all estimates >> depreciation exp is an estimate
capital expenditures - Answers -- expenditures that extend the life of the asset, expand
the productive capacity, increase efficiency, or improve the quality of the product
- provide benefits in current and future periods >> added to an asset account and
subject to depreciation
- typically large dollar amounts
ex) major repairs, remodeling of building
*capitalize and depreciate*
carrying value - Answers -book value
cost - Answers -- any expenditure necessary to acquire and prepare the asset for use
(historical cost principle: record the fixed asset at exchange price)
- capitalized: recorded as an asset and their is no effect on the income statement
- as service potential of op. asset declines, cost is allocated as an expense among the
accounting periods in which the asset is used & benefits are received (expense
recognition/matching principle)
declining balance depreciation method - Answers -- accelerated depreciation method
that produces a declining amount of depreciation exp each period >> larger amounts of
, depr exp in early years & smaller amounts in later years (consistent with a decreasing
rate of decline in service potential)
- it is likely that the computation of depr exp would cause the book value to fall below
residual value (can't happen >> lower depr exp is recorded in last year of the asset's
life)
declining balance rate X book value
declining balance rate - Answers -(m) X straight-line rate
- the multiple (m) is often 2 >> double-declining balance method
depletion - Answers -- cost is allocated to each unit of the natural resource that is
removed and recorded in an inventory account
- as the inventory is sold, the company will recognize an expense (cost of goods sold)
related to the natural resource
- similar to units-of-production
depletion rate X units recovered
depletion rate - Answers -(cost - res. value) / recoverable units
depreciable cost - Answers -cost of the asset - residual value
- the amount that will be depreciated (expensed) over the asset's useful life
depreciation - Answers -- process of allocating, in a systematic and rational manner,
the cost of a tangible fixed asset (other than land) to expense over the asset's useful life
- *cost allocation process* NOT attempt to measure fair value
- doesn't involve cash
- depreciation expense is recorded by making the following adjusting journal entry:
Depreciation Exp xxx
Acc. Depreciation xxx
depreciation and income taxes - Answers -depreciation method used in preparing the
tax return doesn't have to be the same as the ones used for financial statements (not
guided by matching principle)
depreciation cost per unit - Answers -(cost - res. value) / expected usage of the asset
*used in units-of-production*
depreciation expense - Answers -the amount of depreciation recorded each period
(recorded on the income statement)
VERIFIED ACCURATE ANSWERS
accumulated depreciation - Answers -the total amount of depreciation expense that has
been recorded for an asset since the asset was acquired (recorded on balance sheet as
contra-asset)
amortization - Answers -- cost of intangible asset with finite life is allocated to acct
periods over the life of the asset to reflect the decline in service potential
- most companies will amortize on straight-line basis over the shorter of the econ or
legal life of an asset
book value - Answers -cost of the asset - acc. depreciation
- reported on the balance sheet and is usually quite different from the market value
calculating depreciation - Answers -need to know:
- cost of the fixed asset
- useful life (or expected life) of the fixed asset
- residual value (salvage value) of the fixed asset
these are all estimates >> depreciation exp is an estimate
capital expenditures - Answers -- expenditures that extend the life of the asset, expand
the productive capacity, increase efficiency, or improve the quality of the product
- provide benefits in current and future periods >> added to an asset account and
subject to depreciation
- typically large dollar amounts
ex) major repairs, remodeling of building
*capitalize and depreciate*
carrying value - Answers -book value
cost - Answers -- any expenditure necessary to acquire and prepare the asset for use
(historical cost principle: record the fixed asset at exchange price)
- capitalized: recorded as an asset and their is no effect on the income statement
- as service potential of op. asset declines, cost is allocated as an expense among the
accounting periods in which the asset is used & benefits are received (expense
recognition/matching principle)
declining balance depreciation method - Answers -- accelerated depreciation method
that produces a declining amount of depreciation exp each period >> larger amounts of
, depr exp in early years & smaller amounts in later years (consistent with a decreasing
rate of decline in service potential)
- it is likely that the computation of depr exp would cause the book value to fall below
residual value (can't happen >> lower depr exp is recorded in last year of the asset's
life)
declining balance rate X book value
declining balance rate - Answers -(m) X straight-line rate
- the multiple (m) is often 2 >> double-declining balance method
depletion - Answers -- cost is allocated to each unit of the natural resource that is
removed and recorded in an inventory account
- as the inventory is sold, the company will recognize an expense (cost of goods sold)
related to the natural resource
- similar to units-of-production
depletion rate X units recovered
depletion rate - Answers -(cost - res. value) / recoverable units
depreciable cost - Answers -cost of the asset - residual value
- the amount that will be depreciated (expensed) over the asset's useful life
depreciation - Answers -- process of allocating, in a systematic and rational manner,
the cost of a tangible fixed asset (other than land) to expense over the asset's useful life
- *cost allocation process* NOT attempt to measure fair value
- doesn't involve cash
- depreciation expense is recorded by making the following adjusting journal entry:
Depreciation Exp xxx
Acc. Depreciation xxx
depreciation and income taxes - Answers -depreciation method used in preparing the
tax return doesn't have to be the same as the ones used for financial statements (not
guided by matching principle)
depreciation cost per unit - Answers -(cost - res. value) / expected usage of the asset
*used in units-of-production*
depreciation expense - Answers -the amount of depreciation recorded each period
(recorded on the income statement)
