Accounting Chapter 18 Flashcards
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Accounting Chapter 18 Flashcards

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Questions and Answers

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.

<p>True</p> Signup and view all the answers

Charging an equal amount of depreciation expense for a plant asset in each year of useful life is the straight-line method of depreciation.

<p>True</p> Signup and view all the answers

An accounting form on which a business records information about each plant asset is a plant asset record.

<p>True</p> Signup and view all the answers

The original cost of a plant asset minus accumulated depreciation is known as the book value of a plant asset.

<p>True</p> Signup and view all the answers

To record depreciation expense for a fiscal period, the accumulated depreciation account is debited.

<p>False</p> Signup and view all the answers

The declining-balance method of depreciation results in different amounts of depreciation expense each year.

<p>True</p> Signup and view all the answers

When plant assets are bought, the journal entry is similar to recording the buying of current assets such as supplies.

<p>True</p> Signup and view all the answers

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.

<p>False</p> Signup and view all the answers

Assessed value is the value of an asset determined by tax authorities for the purpose of calculating taxes.

<p>True</p> Signup and view all the answers

Revenue that results when a plant asset is sold for more than book value is known as loss on plant assets.

<p>False</p> Signup and view all the answers

Personal property includes buildings but not land.

<p>False</p> Signup and view all the answers

Gain on plant assets is revenue that results when a plant asset is sold for more than book value.

<p>True</p> Signup and view all the answers

Some examples of plant assets are ___________.

<p>computers, cash registers, and display cases</p> Signup and view all the answers

Recording a plant asset at cost is an application of the accounting concept _________.

<p>Historical Cost</p> Signup and view all the answers

Expensing the cost of a plant asset over the plant asset's useful life is an application of the accounting concept _____________.

<p>Matching Expenses with Revenue</p> Signup and view all the answers

The purpose of recording depreciation is to ___________.

<p>record an expense in the periods in which the asset is used to earn revenue</p> Signup and view all the answers

Generally, a business removes a plant asset from use and disposes of it ___________.

<p>when the asset is no longer usable</p> Signup and view all the answers

The total depreciation expense for a fax machine purchased for $700.00 with an estimated salvage value of $100.00 is ____.

<p>$600.00</p> Signup and view all the answers

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 ____.

<p>$120.00</p> Signup and view all the answers

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 ____.

<p>$10.00</p> Signup and view all the answers

Book value of a plant asset is original cost ____________.

<p>minus accumulated depreciation</p> Signup and view all the answers

The journal entry to record the adjustment for office equipment depreciation is debit Depreciation Expense-Office Equipment and credit _______________.

<p>Accumulated Depreciation - Office Equipment</p> Signup and view all the answers

When a plant asset is disposed of, a journal entry is recorded that ___________.

<p>removes the original cost of the plant asset and its related accumulated depreciation expense</p> Signup and view all the answers

The journal entry to record the sale of office equipment for book value is debit Cash and ______________.

<p>debit Accumulated Depreciation - Office Equipment; credit Office Equipment</p> Signup and view all the answers

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 _____________.

<p>no gain or loss</p> Signup and view all the answers

The journal entry to record the sale of office equipment for more than the book value is debit Cash and ____________.

<p>debit Accumulated Depreciation - Office Equipment; credit Office Equipment and Gain</p> Signup and view all the answers

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 ___________.

<p>$100.00 gain</p> Signup and view all the answers

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 _____________.

<p>$50.00 loss</p> Signup and view all the answers

The amount by which a plant asset depreciates is classified as __________.

<p>an expense</p> Signup and view all the answers

Depreciation expense for a plant asset is recorded _______________.

<p>at the end of each fiscal period during the asset's estimated useful life</p> Signup and view all the answers

The accumulated depreciation account should show ___________.

<p>total depreciation for plant assets still in use</p> Signup and view all the answers

When a plant asset is sold for more than the asset's book value, ____________.

<p>cash received plus accumulated depreciation equals original cost plus gain on disposal</p> Signup and view all the answers

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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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.

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