Concept explainers
a)
First-in First-Out method (FIFO): In First-in-First-Out method, the costs of initial purchased items are sold first. The value of the ending inventory consists of the recent purchased items.
Last-in First-Out method (LIFO): In Last-in-First-Out method, the costs of last purchased items are sold first. The value of the closing stock consists of the initial purchased items.
Straight-line
Declining-balance depreciation:
It is an accelerated method of depreciation under which the depreciation declines in each successive year until the value of asset becomes zero. Under this method, the book value (original cost less
To determine: Use of FIFO instead of LIFO
b)
Use of 6-year life instead of 9-year life machinery.
c)
To determine: Use of depreciation method
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Financial Accounting: Tools for Business Decision Making, 8e WileyPLUS (next generation) + Loose-leaf
- Which of the following depreciation methods applies a uniform depreciation rate each period to an asset's carrying amount? a.Straight-lineb.Declining-balancec.Sum-of-the-years'-digitsd.Units-of-productionarrow_forwardAs generally used in accounting, what is depreciation? a. It is an accounting process which systematically allocates long-lived assets cost to accounting periodsb. It applies only to long-term lived intangible assetsc. It is a process of asset valuationd. It is used to indicate a decline in market value of a long-term lived assetarrow_forwardFor accounting purposes, depreciation refers to the process of ________. A. estimating an asset's current market value B. allocating the cost of a plant asset to expense over its useful life C. recording the decline in the market value of an asset to its book value D. determining the selling price of an assetarrow_forward
- Which depreciation method would result in the same depreciation expense amount regardless of the partial period cor Select one: a. Sum-of-the-years'-digits b. Declining-balance c. Units-of-production d. Straight-linearrow_forwardThe straight-line method of depreciation allocates the cost of an asset more rapidly than the sum-of-the-years-digits method.arrow_forwardWhen an entity adjusted the historical cost income statement by applying specific price index to depreciation, the income statement is prepared according to: a. Fair value accounting b. Purchasing power accounting c. Current cost accounting d. Nominal peso accountingarrow_forward
- A gain or loss on the sale of a plant asset is determined by comparing the: A. Asset's original cost with the sales proceeds B. Asset's book value with the sales proceeds C. Asset's original cost with the asset's book value. D. Initial estimate of the asset's salvage value with the sales proceeds. E. None of these.arrow_forwardAccording to historical cost principle, the assets and liabilities should be reported (tick whichever apply)? a.At their market value b.At their cost of acquisition c.At their replacement value d.All of the abovearrow_forwardWhich of the following best describes depreciation? A.ccounts for the market value of a physical asset B.Part of the cost of a physical asset allocated as an expense to each time period in which the asset is used. C.Shows the increase in value of a physical asset over the asset’s useful life D.Shows the drop in value of an asset when the asset is first used by an entityarrow_forward
- The depreciation expense is generally estimated based on some assumption such as percentage of sales or from a depreciation schedule. True Falsearrow_forwardDepreciation is a process of: a. Asset devaluation b. Cost accumulation c. Cost allocation d. Asset valuationarrow_forwardWhich of the following statements relating to the Accumulated Depreciation account is correct? Select one: O a. The normal balance of the Accumulated Depreciation account is a debit balance. O b. The Accumulated Depreciation account allows the accountant to determine the precise market value of the related asset. O c. The Accumulated Depreciation account is classified as a Liability account. O d. The balance in Accumulated Depreciation account reflects the portion of the historical cost of the asset that has become expense since the item was purchased.arrow_forward
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