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Three major types of plant assets are equipment, buildings, and merchandise inventory.
False
A plant asset account has a normal debit balance.
True
Plant assets decrease in value because of use and the passage of time.
True
Two of the factors that affect the amount of depreciation expense for a plant asset are the estimated salvage value and estimated useful life of the plant asset.
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Charging an equal amount of depreciation expense for a plant asset in each year of useful life is the straight-line method of depreciation.
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An accounting form on which a business records information about each plant asset is a plant asset record.
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The original cost of a plant asset minus accumulated depreciation is known as the book value of a plant asset.
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To record depreciation expense for a fiscal period, the accumulated depreciation account is debited.
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The declining-balance method of depreciation results in different amounts of depreciation expense each year.
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When plant assets are bought, the journal entry is similar to recording the buying of current assets such as supplies.
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The portion of a plant asset's cost that is transferred to an expense account in each fiscal period during a plant asset's useful life is accumulated depreciation.
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Assessed value is the value of an asset determined by tax authorities for the purpose of calculating taxes.
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Revenue that results when a plant asset is sold for more than book value is known as loss on plant assets.
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Personal property includes buildings but not land.
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Gain on plant assets is revenue that results when a plant asset is sold for more than book value.
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Some examples of plant assets are ___________.
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Recording a plant asset at cost is an application of the accounting concept _________.
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Expensing the cost of a plant asset over the plant asset's useful life is an application of the accounting concept _____________.
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The purpose of recording depreciation is to ___________.
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Generally, a business removes a plant asset from use and disposes of it ___________.
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The total depreciation expense for a fax machine purchased for $700.00 with an estimated salvage value of $100.00 is ____.
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The annual depreciation expense for a fax machine purchased for $700.00 with an estimated salvage value of $100.00 and a useful life of five years is ____.
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The monthly depreciation expense for a fax machine purchased for $700.00 with an estimated salvage value of $100.00 and useful life of five years is ____.
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Book value of a plant asset is original cost ____________.
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The journal entry to record the adjustment for office equipment depreciation is debit Depreciation Expense-Office Equipment and credit _______________.
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When a plant asset is disposed of, a journal entry is recorded that ___________.
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The journal entry to record the sale of office equipment for book value is debit Cash and ______________.
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If a plant asset costs $1,200.00, has an accumulated depreciation of $1,000, and is sold for $200.00, the gain or loss on disposal is _____________.
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The journal entry to record the sale of office equipment for more than the book value is debit Cash and ____________.
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If a plant asset costs $4,000.00, had accumulated depreciation of $3,200.00, and is sold for $900.00, the gain or loss on disposal is ___________.
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If a plant asset costs $700.00, has an accumulated depreciation of $550.00, and is sold for $100.00, the gain or loss on disposal is _____________.
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The amount by which a plant asset depreciates is classified as __________.
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Depreciation expense for a plant asset is recorded _______________.
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The accumulated depreciation account should show ___________.
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When a plant asset is sold for more than the asset's book value, ____________.
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Study Notes
Plant Assets Overview
- Plant assets include equipment, buildings, and more, primarily used in operations and not held for resale.
- Plant asset accounts have a normal debit balance, indicating their asset nature.
Depreciation
- Depreciation occurs due to usage and time, impacting the asset's value.
- Two critical factors influencing depreciation expense are estimated salvage value and estimated useful life.
- The straight-line method allocates equal depreciation amounts annually over the asset's useful life.
Accounting Records
- Plant asset records document all relevant information about each asset.
- Book value is the original cost minus accumulated depreciation, reflecting the current value of the asset.
Accumulated Depreciation
- To record depreciation expense, the Depreciation Expense account is debited, but the accumulated depreciation account is credited.
- Accumulated depreciation indicates the total depreciation for plant assets still in use and helps track asset value over time.
Disposal of Plant Assets
- Assets are commonly disposed of when they become unusable.
- When disposing of assets, it’s essential to remove the original cost and its accumulated depreciation from the accounting records.
Gains and Losses
- A gain occurs when a plant asset is sold for more than its book value, while a loss occurs if sold for less than its book value.
- For example, selling an asset purchased for $1,200 with $1,000 accumulated depreciation for $200 results in no gain or loss.
Journal Entries
- When recording the sale of an asset for book value, both Cash and Accumulated Depreciation accounts are adjusted.
- If sold for a gain, Cash and Accumulated Depreciation are debited, and Gain is credited.
Expensing and Matching Concept
- Depreciation expense reflects the cost of using an asset over its useful life, adhering to the matching principle in accounting.
- Expensing an asset's cost ensures expenses align with the revenue generated during that period.
Monthly and Annual Depreciation
- The annual depreciation can be calculated based on the asset's cost, estimated salvage value, and useful life.
- For instance, a fax machine costing $700 with a salvage value of $100 over five years has annual depreciation of $120, equating to $10 monthly.
Importance of Correct Accounting
- Properly recording depreciation ensures the correct representation of asset value and financial statements.
- Understanding the treatment of plant assets, including depreciation and disposal, is crucial for accurate financial reporting.
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Description
Test your knowledge on plant assets and their depreciation with this flashcard quiz from Accounting Chapter 18. Dive into key concepts such as normal balances and factors affecting depreciation expenses.
