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

Answers

1. False. The correct answer: Depreciation is a process of cost allocation, not a process of asset valuation.
2. True
3. False: The correct Answer: The book value of a plant asset may be quite different from its fair value.
4. False: The correct Answer: Depreciation applies to three classes of plant assets: land improvements, buildings, and equipment.
5. False: The correct Answer: Depreciation does not apply to a land because its usefulness and revenue-producing ability generally remain intact over time.
6. True
7. False: The correct Answer: Recognizing depreciation on an asset does not results in an accumulation of cash for replacement of the asset.
8. True
9. False: The correct Answer: Depreciation expense is reported on the income statement.
10. False: The correct Answer: Three factors affect the computation of depreciation: cost, useful life, and salvage value