Accounting Iich. 8 Reading Guide
Accounting IICh. 8 Reading Guide
ACCOUNTING II
Chapter 8Reading Guide
Answer the following questions as you read Chapter 8, pages 222-250.
8-1: INTRODUCTION & BUYING PLANT ASSETS
What is the difference between current assets and plant assets?(2 pt.)
What are plant assets sometimes referred to as?
(1 pt.)
Why is the purchasing of equipment (office, warehouse, or store equipment) journalized in a General Journal and not a Purchases Journal?
(1 pt.)
What is the difference between real property and personal property? Give an example of personal property a business may own.
(3 pt.)
What is an assessed value? What is book value?
(2 pt.)
Why might an assessed value be different than the book value?
(1 pt.)
8-2: CALCULATING AND JOURNALIZING DEPRECIATION EXPENSE
What is depreciation?(1 pt.)
Why is land not depreciated?
(1 pt.)
What three things must be known to calculate depreciation expense?
(3 pt.)
What is included in the original cost of an asset?
(3 pt.)
What is salvage value?
(1 pt.)
What are other terms used when referring to salvage value?
(1 pt.)
What is useful life?
(1 pt.)
How do most businesses determine the useful life of an asset?
(1 pt.)
What is the formula for calculating straight-line depreciation?
(1 pt.)
What are the two places that depreciation expense is recorded?
(2 pt.)
What does the Accumulated Depreciation amount represent?
(1 pt.)
What does the book value represent?
(1 pt.)
An asset should never be depreciated below what amount?
(1 pt.)
What happens if the useful life exceeds past the estimated useful life?
(1 pt.)
What accounts are affected and how (debit or credit) when recording an adjusting entry to record depreciation?
(2 pt.)
What is the smallest amount of time depreciation expense is calculated for? (day, week, month, year)
(1 pt.)
If the annual depreciation expense was $200 and the asset was used for 3 months only, how would the depreciation for the 3 months be calculated? What is the depreciation for 3 months?
(2 pt.)
8-3: DISPOSING OF PLANT ASSETS
Plant assets can be disposed of in three ways. List the three ways.(3 pt.)
When an asset is disposed of, the middle section of a plant asset record is completed. When an asset is discarded, what amount is listed for the disposal amount?
(1 pt.)
When disposing of an asset, it may be necessary to record two entries. What are the two entries for?
(2 pt.)
“Loss on Plant Asset” is classified as what kind of an account?
(1 pt.)
How is the amount of gain or loss calculated?
(1 pt.)
8-4: OTHER METHODS OF CALCUALTING DEPRECIATION
What are three other methods of recording depreciation, other than straight-line?(3 pt.)
Using the declining balance method, in which year is the largest depreciation recorded?
(1 pt.)
How is the declining balance rate calculated?
(1 pt.)
What is the formula for calculating a year’s depreciation using the declining balance method?
(1 pt.)
Using the declining balance method, what must an accountant watch carefully in the final years of an assets useful life?
(1 pt.)
Using the sum-of-the-years digits, what is the fraction used to depreciate the first year of an assets useful life if the asset has a useful life of 7 years?
(1 pt.)
Using the information from question 34 above, what is the first year’s depreciation for an asset with an original cost of $5,000 and an estimated salvage value of $1,000? (Show your work)
(2 pt.)
Give an example of when the production-unit method of depreciation may be the best depreciation method to use?
(1 pt.)
Why are the “Declining-Balance Method” and “Sum-of-the-Years’ Digits” depreciation methods considered accelerated depreciation methods?
(1 pt.)
Give an example of when the production-unit method of depreciation may be the best depreciation method to use?
(1 pt.)
What does MACRS stand for? What is MACRS?
(2 pt.)
What is the assumption of the MACRS system regarding when an asset is used? Why do you think the IRS assumes this (your opinion)?
(2 pt.)
Give an example of a situation when depletion expense should be recorded instead of depreciation expense?
(1 pt.)
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