Understand depreciation concepts. E10.4 (LO 2) Tom Parkey has prepared the following list of statements about depreciation. 1. Depreciation is a process of asset valuation, not cost allocation. 2. Depreciation provides for the proper matching of expenses with revenues. 3. The book value of a plant asset should approximate its fair value. 4. Depreciation applies to three classes of plant assets: land, buildings, and equipment. 5. Depreciation does not apply to a building because its usefulness and revenue-producing ability generally remain intact over time. 6. The revenue-producing ability of a depreciable asset will decline due to wear and tear and to obsolescence. 7. Recognizing depreciation on an asset results in an accumulation of cash for replacement of the asset. 8. The balance in accumulated depreciation represents the total cost that has been charged to expense. 9. Depreciation expense and accumulated depreciation are reported on the income statement. 10. Four factors affect the computation of depreciation: cost, useful life, salvage value, and residual value. Instructions Identify each statement as true or false. If false, indicate how to correct the statement.

Understand depreciation concepts. E10.4 (LO 2) Tom Parkey has prepared the following list of statements about depreciation. 1. Depreciation is a process of asset valuation, not cost allocation. 2. Depreciation provides for the proper matching of expenses with revenues. 3. The book value of a plant asset should approximate its fair value. 4. Depreciation applies to three classes of plant assets: land, buildings, and equipment. 5. Depreciation does not apply to a building because its usefulness and revenue-producing ability generally remain intact over time. 6. The revenue-producing ability of a depreciable asset will decline due to wear and tear and to obsolescence. 7. Recognizing depreciation on an asset results in an accumulation of cash for replacement of the asset. 8. The balance in accumulated depreciation represents the total cost that has been charged to expense. 9. Depreciation expense and accumulated depreciation are reported on the income statement. 10. Four factors affect the computation of depreciation: cost, useful life, salvage value, and residual value. Instructions Identify each statement as true or false. If false, indicate how to correct the statement.

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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5. 1.) What is the difference between current assets and plant and equipment? Do you think land should be allowed to depreciate? 2.) What is the difference between depreciation expense and accumulated depreciation? Why does the book value of an asset never go below the residual value?
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Respond to the following in a minimum of 175 words: What characteristics of a plant asset make it different from other assets? Why does GAAP require depreciation for certain plant assets? The balance in an Accumulated Depreciation - Equipment account does not represent funds to replace the equipment when it wears out; instead, what does it represent?
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What is the effective life of an asset? a. The total period of ownership of the asset, including when it is not installed and ready for use.. b. The period prior to the asset being abandoned or scrapped. c. The period that the asset can be used for income-producing purposes. d. All of the above.
4. The most appropriate definition of depreciation is: A. A means of determining the decrease in the market value of an asset over time B. A means of allocating the cost of an asset over a number of accounting periods C. A means of setting funds aside for the replacement of the asset D. A means of estimating the current value of the asset
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