Intermediate Accounting 19e Earl K Stice James D Stice – Test Bank
Chapter 11—Investments in Noncurrent Operating Assets-Utilization and Retirement
MULTIPLE CHOICE
- The sum-of-the-years’-digits method of depreciation is being used for a machine with a five-year estimated useful life. What would be the fraction applied to the cost to be depreciated in the fourth year?
| a. | 2/5 |
| b. | 4/5 |
| c. | 2/15 |
| d. | 4/15 |
ANS: C PTS: 1 DIF: Medium OBJ: LO 1
TOP: AICPA FN-Measurement MSC: AACSB Analytic
- Depreciation of noncurrent operating assets is an accounting process for the purpose of
| a. | reporting declining asset values on the balance sheet. |
| b. | allocating asset costs over the periods benefited by use of the assets. |
| c. | accounting for costs to reflect the change in general price levels. |
| d. | setting aside funds to replace assets when their economic usefulness expires. |
ANS: B PTS: 1 DIF: Easy OBJ: LO 1
TOP: AICPA FN-Measurement MSC: AACSB Analytic
- Which of the following principles best describes the conceptual rationale for the methods of matching depreciation expense with revenues?
| a. | Partial recognition |
| b. | Immediate recognition |
| c. | Systematic and rational allocation |
| d. | Associating cause and effect |
ANS: C PTS: 1 DIF: Medium OBJ: LO 1
TOP: AICPA FN-Measurement MSC: AACSB Analytic
- Information needed to compute a depletion charge per unit includes the
| a. | estimated total amount of resources available for removal. |
| b. | amount of resources removed during the period. |
| c. | cumulative amount of resources removed. |
| d. | amount of resources sold during the period. |
ANS: A PTS: 1 DIF: Medium OBJ: LO 2
TOP: AICPA FN-Measurement MSC: AACSB Analytic
- The composite depreciation method
| a. | is applied to a group of homogeneous assets. |
| b. | is an accelerated method of depreciation. |
| c. | does not recognize gain or loss on the retirement of specific assets in the group. |
| d. | excludes salvage value from the base of the depreciation calculation. |
ANS: C PTS: 1 DIF: Medium OBJ: LO 1
TOP: AICPA FN-Measurement MSC: AACSB Analytic
- In order to calculate the third year’s depreciation on an asset using the sum-of- the-years’-digits method, which of the following must be known about the asset?
| a. | Its acquisition cost |
| b. | Its estimated salvage value |
| c. | Its estimated useful life |
| d. | All of these must be known. |
ANS: D PTS: 1 DIF: Medium OBJ: LO 1
TOP: AICPA FN-Measurement MSC: AACSB Analytic
- Which of the following statements is the assumption on which straight-line depreciation is based?
| a. | The operating efficiency of the asset decreases in later years. |
| b. | Service value declines as a function of obsolescence rather than time. |
| c. | Service value declines as a function of time rather than use. |
| d. | Physical wear and tear are more important than economic obsolescence. |
ANS: C PTS: 1 DIF: Medium OBJ: LO 1
TOP: AICPA FN-Measurement MSC: AACSB Analytic
- A method that ignores salvage value in the early years of the asset’s life in calculating periodic depreciation expense is the
| a. | productive-output method. |
| b. | group composite method. |
| c. | sum-of-the-years’-digits method. |
| d. | double-declining-balance method. |
ANS: D PTS: 1 DIF: Easy OBJ: LO 1
TOP: AICPA FN-Measurement MSC: AACSB Analytic
- Which of the following is NOT required to be reported in the financial statements or disclosed in the accompanying notes?
| a. | Balances of major classes of noncurrent operating assets at the balance sheet date |
| b. | Gross historical cost and accumulated amortization for intangible assets at the balance sheet date |
| c. | Gross historical cost and accumulated depreciation for tangible noncurrent operating assets at the balance sheet date |
| d. | A general description of the cost allocation methods used with respect to major classes of noncurrent operating assets |
ANS: B PTS: 1 DIF: Medium OBJ: LO 1
TOP: AICPA FN-Reporting MSC: AACSB Reflective Thinking
- Which of the following depreciation methods most closely approximates the method used to deplete the cost of natural resources?
| a. | Straight-line method |
| b. | Double-declining-balance method |
| c. | Sum-of-the-years’-digits method |
| d. | Units-of-production method |
ANS: D PTS: 1 DIF: Easy OBJ: LO 2
TOP: AICPA FN-Measurement MSC: AACSB Analytic
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