Accounting 201Chapter 07 Power Point Flashcards
What are categories of Long-Term Assets
1) Property, Plant and Equipment = Land, land improvements, buildings, equipment, and natural resources. = Physical substance.2) Intangible Assets = Patents, trademarks, copyrights, franchises, and goodwill = Lacks physical substance.
What is the equation used to Identify and record the major types of Property, plant, and equipment?
Cost + All expenditures necessary to get the asset ready for use
When you purchase intangible assets like patents, copyrights, trademarks, or franchise rights from other entities how do you record them?
Record purchased intangible assets at their original cost plus all other costs, such as legal and filing fees, necessary to get the asset ready for use.
When you create intangible assets internally through research and development or advertising how do you record them?
Most of the costs for internally developed intangible assets are expensed to the income statement as they are incurred.
What are the accounting treatment of expenditures after acquisition? (List of expenditures: Repairs and maintenance, additions, improvements, or litigation costs)
1) Capitalize as an asset if it increases future benefits.2) Expense if it benefits only the current period.
How do you calculate the depreciation of property, plant, and equipment.
Cost incurred to purchase an asset (future benefit) allocation of a portion of the asset’s cost to an expense over all periods benefited. I.E. $1200 quarterly is $400 ever 3 months.
Define intangible assets subject to amortization:
Assets having a finite useful life that we can estimate. I.E. Patents, Copyrights, Franchises.
Define intangible assets not subject to amortization:
Assets having indefinite useful lives. I.E. Goodwill, Trademarks.
What are three ways to dispose of assets and the result?
1) Sale = Can result in either a gain or a loss.2) Retirement = Occurs when a long-term asset is no longer useful but cannot be sold.3) Exchange = Occurs when two companies trade assets.
To maximize profitability, a company ideally strives to increase both net income per dollar of sales (profit margin) and sales per dollar of assets invested (asset turnover). How? Mathematically?
Analyze the relation between Return on Assets, Profit Margin and Asset Turnover to analyze the profitability of a company’s assets.’Return on Assets = Profit Margin x Asset TurnoverNet Income/Average Total Assets = Net Income/ Net Sales x Net Sales/Average Total Assets.
Asset Impairment…. Impairment occurs when the future cash flows (future benefits) generated for a long-term asset is
Impairment loss = Asset’s book value (-) its fair value
