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Exam 3 accounting flashcards > 3 > Flashcards

3 Flashcards

1
Q

what is a tangible asset

A

An asset that you can physically touch

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2
Q

what are plant assets

A

tangible assets that have a useful life of more than one accounting period

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3
Q

how is a plant asset characterized

A

by being used in operations
having a useful life more than one accounting period

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4
Q

what are included in a plant assets’ cost

A

any cost needed to get an asset in place and ready for use

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5
Q

what if a product gets damaged while its being unboxed? does it get added to the cost of the asset or does it get expensed

A

expensed

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6
Q

what are the 4 major classes of plant assets

A

Machinery & Equipment, buildings, land improvement, and land.

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7
Q

how do you record a land improvement?

A

Debit Land Improvements,
Credit cash

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8
Q

what is a lump sum or basket purchase

A

plant assets that are purchased in a group in a single transaction

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9
Q

how to calculate lump sum or basket purchase

A

take the appraised value and look at the apportioned cost. determine how much each item would be (seperately) at the apportioned cost.

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10
Q

Depreciation

A

the process of allocating the cost of a plant asset to expense while it is in use.

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11
Q

does depreciation measure the decline in the assets market value or physical deterioration

A

no

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12
Q

what are the 3 factors for computing deterioration

A

cost
salvage value
useful life

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13
Q

cost

A

consists of all necessary and reasonable expenditures to acquire it and prepare it for its intended use

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14
Q

salvage value

A

residual or scrap value, is an estimate of the assets value at the end of its useful life
if the asset is to be traded in then the trade in value is the expected trade in value
if we expect disposal costs, salvage value= expected amount received from disposal- any disposal costs

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15
Q

useful life

A

the length of time an asset is used in a companies’ operations.
may not be as long as assets total productive life.

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16
Q

what are the 3 depreciation methods

A

straight line, units of production, declining balance method

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17
Q

straight line

A

charges the same amount to each period of the assets useful life
a 2 step process is used

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18
Q

how to calculate straight line

A

Cost-salvage value/useful life in periods

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19
Q

how to record straight line depreciation

A

Debit depreciation expense
credit accumulated depreciation

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20
Q

what is the straight line depreciation rate?

A

100% / # of periods in assets useful life

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21
Q

units of production

A

the use of some plant assets varies from period to period.
charges a varying amount per period depending on the usage of the asset

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22
Q

How do you calculate/ what are the steps for units of production

A

Step 1- Depreciation per unit: Cost-salvage value / total units of production

Step 2- depreciation expense: Depreciation per unit x units produced in period

this calculates the uop depreciation schedule

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23
Q

when does depreciation stop

A

when an assets book value equals its salvage value

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24
Q

declining balance method

A

an accelerated depreciation method, has more depreciation in the early years and less in the later years. the most common is the declining balance method- that has depreciation rate that is a multiple of the straight line rate

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25
what are the 3 steps to the declining balance method
1. compute assets straight line depreciation rate 2. double the straight line rate 3. compute depreciation by multiplying this rate by the assets beginning period book value 1. straight line rate = 100% / useful life 2. double declining balance rate= 2x straight line rate 3. depreciation expense= DD balance rate x beginning period book value
26
when comparing methods, do any of the 3 have different total amounts of depreciation for an asset over its total useful life
no
27
does depreciation per period change between the 3 methods
yes
28
which method has the most beginning depreciation
double declining balance
29
What allows straight line depreciation for some assets but requires accelerated depreciation for most kinds of assets
Modified Accelerated cost Recovery System (MACRS)
30
What is the most popular out of the 3 methods?
straight line
31
how to calculate for a partial year using the straight line method
take the cost- salvage value and / by useful life in years multiply by how many months it is used/ depreciated for the rest of that year example cost- 26000 est. use 4 years salvage value- 2000 being charged from october 30- dec. 31 (26,000-2,000=24000) 24000(2/12)=1000
32
change in estimates
the change of an estimate on an assets salvage value/ useful life
33
how to calculate a change in estimates
book value - revised salvage value/ revised remaining useful life
34
impairment
a permanent decline in the fair value of an asset relative to its book value
35
how to record imparment
Debit impairment loss credit accumulated depreciation
36
what are additional expenditures
plant assets require maintenance, repairs and improvements we must decide whether to expense or capitalize these expenditures ( *increase asset account)
37
revenue expenditures
also income statement expenditures, costs that do not materially increase the plant assets life or capabilities they are recorded as expenses on the current period income statement
38
capital expenditures
costs of plant assets that provide benefits for longer than the current period. they increase the asset on the balance sheet.
39
ordinary repairs
expenditures to keep an asset in working condition. they do not change the useful life or performance beyond original expectations
40
betterments/improvements
expenditures that make assets more efficient or productive.
41
how are ORDINARY repairs recorded
Debit to repairs expense Credit to cash
42
extraordinary repairs
ones that extend the assets useful life beyond original estimate.
43
what are the 3 ways disposing of plant assets happen?
1. by discarding 2. by selling 3. by exchanging
44
what are the steps in disposing of a plant asset
1. record depreciation up to the date of disposal- this also updates accumulated depreciation 2. record the removal of the disposed assets account balances- including accumulated depreciation 3. record any cash (and/or any other assets) received or paid in the disposal. 4.record any gain or loss- equal to the value of any assets received minus the disposed assets book value
45
recording discarded plant assets
they are discarded when it is no longer useful to the company and has no market value debit accumulated depreciation credit the asset youre discarding (machinery if its machinery)
46
sale at book value
debit cash and accumulated depreciation credit equipment
47
sale above book value
debit cash and accumulated depreciation credit gain on disposal and equipment
48
sale below book value
debit cash, loss on disposal of equipment, and accumulated depreciation credit equipment
49
natural resources
assets that are physically consumed when used.
50
examples of natural resources
timber, minerals, oil fields, gas fields
51
natural resources are non current assets until when
until they are cut mined or pumped
52
natural resources are recorded at
cost and include all necessary expenditures to acquire the resource and prepare it for use.
53
what is depletion
the process of allocating the cost of a natural resource to the period when it was consumed
54
how to calculate depletion
1. depletion per unit= cost - salvage value / total units of capacity 2. depletion expense= depletion per unit x units extracted and sold in period
55
how to record depletion expense
debit depletion expense credit accumulated depletion
56
how to record depletion of there is still leftover natural resource
debit depletion expense debit the resources inventory credit accumulated depletion
57
plant assets tied into extracting
mining, cutting or pumping requires machinery, equip. and buildings. when the usefullness of these plant assets is directly related to the depletion of a natural resource their costs are depreciated using the units of production method in proportion to the depletion of the natural resource
58
example of plant assets tied into extracting
a machine is permanently installed in a mine and 10% ore is mined and sold in the period then 10% of the machines cost - any savage value is depreciated
59
intangible assets
non physical assets used in operations that give companies long term rights or competitive advantages
60
what are some examples of intangible assets
patents copyrights licenses leaseholds franchises trademarks
61
cost determination and amortization
intangible asset is recorded at cost when bought. they can have limited or indefinite lives if it has a life, the cost is expensed over its estimated useful life using amortization
62
amortization
similar to depreciation, only the straight line method is used for amortizing intangibles unless the company can show another method is preferred its recorded in contra accounts, accum, amortization
63
patents
granted by the government to encourage the invention of new tech and processes its an exclusive right granted to its owner to manufacture and sell a patented item or use a process for 20 years
64
patents cost
is amortized recorded by debiting amortization expense crediting accumulated amortization
65
copyrights
A copyright gives its owner the exclusive right to publish and sell a musical, literary, or artistic work during the life of the creator plus 70 years, although the useful life of most copyrights is much shorter. The costs of a copyright are amortized over its useful life.
66
franchises and licenses
Franchises and licenses are rights that a company or government grants an entity to sell a product or service under specified conditions. Many organizations grant franchise and license rights-Anytime Fitness, Firehouse Subs, and Major League Baseball are just a few examples.
67
trademarks and trade names
A trademark or trade (brand) name is a symbol, name, phrase, or jingle identified with a company, product, or service. Examples are Nike Swoosh, Big Mac, Coca-Cola, and Corvette. Ownership and exclusive right to use a trademark or trade name often are granted to the company that used it first.
68
goodwill
Goodwill is the amount by which a company's value exceeds the value of its individual assets and liabilities. This implies that the company as a whole has certain valuable attributes not measured in assets and liabilities.
69
right of use asset (lease)
Property is rented under a contract called a lease. The property's owner, called the lessor, grants the lease. The one who to possess and use the property is called the lessee. A leasehold is the rights the lessor grants to the lessee under the terms of the lease.
70
lease or buy
Some advantages secures the right of leasing an asset versus buying it are that * Little or no up-front payment is normally required (making it more affordable). * Lease terms often allow exchanges to trade up on leased assets (reducing obsolescence).
71
leasehold improvements
A lessee sometimes pays for improvements to the leased property such as partitions, painting, and storefronts. These improvements are called leasehold improvements, and the lessee debits these costs to a Leasehold Improvements account. The lessee amortizes these costs over the life of the lease or the life of the improvements, whichever is shorter.
72
other intangibles
There are other types of intangible assets such as software, non compete covenants, customer lists, and so forth. Accounting for them is the same as for other intangibles.
73
research and development
Research and development costs are expenditures to discover new products, new processes, or knowledge. Creating patents, copyrights, and innovative products and services requires research and development costs expensed when incurred
74
average total assets
Net sales / average total assets
75
is a high or low total asset turnover better
high
76

Exam 3 accounting flashcards (2 decks)

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