Problem 3 (20 Points) Place T (true) or F (false) in front of each of the follow

Question

Problem 3 (20 Points) Place T (true) or F (false) in front of each of the following statements. anit assets should not be written down (below cost) when their market value has -2. An asset's cost plus its accumulated depreciation equals its book value. The straight-line method of depreciation is based on the assumption that depreciation expense can be regarded as a constant function of time. 3. 4. The correction of prior periods' depreciation estimates would be disclosed on the retained earnings statement. Expenditures to improve the efficieney or extend the useful life of an asset should be expensed. s 6 In nonmonetary exchanges losses are always recognized 7 In nonmonetary exchanges, gains are recognized when the exchange has commercial substance 8 Inventory should be reported at the lower of cost or market and it may be based on the values of individual items, categories, or the total inventory.

Explanation / Answer

1 TRUE Only in the case of permanent decline in the market value of the asset, the plant should be written down below the cost 2 FALSE Book value of an asset is equals to asset's cost less accumulated depreciation 3 TRUE In straight line depreciation method, depreciation expense is allocated by dividing the cost of asset less salvage by its useful life 4 FALSE It is shown in the othe comprehensive statement 5 FALSE Any expenditure to improve the efficiency or useful life of an asset should be capitalized 6 TRUE Nonmonetary exchange losses are always recognized 7 TRUE Nonmonetary exchange gains are recognized only when the exchange has commercial substance 8 TRUE Inventory should be reported at the lower of the cost or market and it may be based on the value of individual items, categories, or the total inventory

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