Accounting Questions On Depreciation

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Register to read the introduction… The depreciable cost of a plant asset is its original cost minus obsolescence.

9. Recording depreciation each period is an application of the expense recognition principle. 10. The Accumulated Depreciation account represents a cash fund available to replace plant assets.

11. In calculating depreciation, both plant asset cost and useful life are based on estimates.

12. Using the units-of-activity method of depreciating factory equipment will generally result in more depreciation expense being recorded over the life of the asset than if the straight-line method had been used.

13. Salvage value is not subtracted from plant asset cost in determining depreciation expense under the declining-balance method of depreciation. 14. The declining-balance method of depreciation is called an accelerated depreciation method because it depreciates an asset in a shorter period of time than the asset's useful life. 15. Under the double-declining-balance method, the depreciation rate used each year remains constant. 16. The IRS does not require the taxpayer to use the same depreciation method on the tax return that is used in preparing financial
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The cost of a patent must be amortized over a 20-year period.

43. The cost of a patent should be amortized over its legal life or useful life, whichever is shorter.

44. The balances of the major classes of plant assets and accumulated depreciation by major classes should be disclosed in the balance sheet or notes. 45. The asset turnover ratio is calculated as total sales divided by ending total assets. 46. Research and development costs can be classified as a property, plant, and equipment item or as an intangible asset. 47. Usually, companies combine plant assets and intangibles under "Property, plant, and equipment in the balance sheet.

48. The asset turnover ratio analyzes the productivity of a company's assets.

49. Accounting for exchanges of plant assets is easier if the transaction does not have commercial substance. a50. An exchange of plant assets has commercial substance if the future cash flows change as a result of the exchange. a51. Companies record a gain or loss on the exchange of plant assets because most exchanges have commercial

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