Acct 112 Chap 10

Question 1

Accelerated depreciation method

Answer 1

An accelerated depreciation method yields larger depreciation expenses in the early years of an asset’s life and less depreciation in later years.

Question 2

Amortization

Answer 2

Process of allocating the cost of an intangible asset to expense over its estimated useful life.

Question 3

Asset book value/Book value

Answer 3

Asset’s acquisition costs less its accumulated depreciation (or depletion, or amortization); also sometimes used synonymously as the carrying value of an account.

Question 4

Betterments

Answer 4

Expenditures to make a plant asset more efficient or productive; also called improvements.

Question 5

Capital expenditures

Answer 5

Additional costs of plant assets that provide material benefits extending beyond the current period; also called balance sheet expenditures

Question 6

Change in an accounting estimate

Answer 6

Change in an accounting estimate that results from new information, subsequent developments, or improved judgment that impacts current and future periods.

Question 7

Copyright

Answer 7

Right giving the owner the exclusive privilege to publish and sell musical, literary, or artistic work during the creator’s life plus 70 years.

Question 8

Cost

Answer 8

All normal and reasonable expenditures necessary to get an asset in place and ready for its intended use.

Question 9

Declining-balance method

Answer 9

Method that determines depreciation charge for the period by multiplying a depreciation rate (often twice the straight-line rate) by the asset’s beginning-period book value.

Question 10

Depletion

Answer 10

Process of allocating the cost of natural resources to periods when they are consumed and sold.

Question 11

Depreciation

Answer 11

Expense created by allocating the cost of plant and equipment to periods in which they are used; represents the expense of using the asset.

Question 12

Extraordinary repairs

Answer 12

Major repairs that extend the useful life of a plant asset beyond prior expectations; treated as a capital expenditure

Question 13

Franchises

Answer 13

Privileges granted by a company or government to sell a product or service under specified conditions.

Question 14

Goodwill

Answer 14

Amount by which a company’s (or a segment’s) value exceeds the value of its individual assets less its liabilities.

Question 15

Impairment

Answer 15

Diminishment of an asset value.

Question 16

Inadequacy

Answer 16

Condition in which the capacity of plant assets is too small to meet the company’s production demands.

Question 17

Indefinite life

Answer 17

Asset life that is not limited by legal, regulatory, contractual, competitive, economic, or other factors

Question 18

Intangible assets

Answer 18

Long-term assets (resources) used to produce or sell products or services; usually lack physical form and have uncertain benefits.

Question 19

Land Improvements

Answer 19

Assets that increase the benefits of land, have a limited useful life, and are depreciated

Question 20

Lease

Answer 20

Contract specifying the rental of property

Question 21

Leasehold

Answer 21

Rights the lessor grants to the lessee under the terms of a lease.

Question 22

Leasehold improvements

Answer 22

Alterations or improvements to leased property such as partitions and storefronts.

Question 23

Lessee

Answer 23

Party to a lease who secures the right to possess and use the property from another party (the lessor).

Question 24

Lessor

Answer 24

Party to a lease who grants another party (the lessee) the right to possess and use its property.

Question 25

Licenses

Answer 25

(Franchises) Privileges granted by a company or government to sell a product or service under specified conditions.

Question 26

Limited life

Answer 26

(useful life) Length of time an asset will be productively used in the operations of a business; also called service life.

Question 27

Modified Accelerated Cost Recovery System (MACRS)

Answer 27

Depreciation system required by federal income tax law.

Question 28

Natural resources

Answer 28

Assets physically consumed when used; examples are timber, mineral deposits and oil and gas fields; also called wasting assets.

Question 29

Obsolescence

Answer 29

Conditions in which, because of new inventions and improvements, a plant asset can no longer be used to produce goods and services with a competitive advantages

Question 30

Ordinary repairs

Answer 30

Repairs to keep a plant asset in normal, good operating condition; treated as a revenue expenditure and immediately expensed.

Question 31

Patent

Answer 31

Exclusive right granted to its owner to produce and sell and item or to use a process for 17 years.

Question 32

Plant asset age

Answer 32

Plant asset age is an approximation of the age of plant assets, which is estimated by dividing accumulated depreciation by depreciation expense.

Question 33

Plant assets

Answer 33

Tangible long-lived assets used to produce or sell products and services; also called property, plant and equipment (PP&E) or fixed assets.

Question 34

Revenue expenditures

Answer 34

Expenditures reported on the current income statement as an expense because they do not provide benefits in future periods.

Question 35

Salvage value

Answer 35

Estimate of amount to be recovered at the end of an asset's useful life; also called residual value or scrap value

Question 36

Straight-line depreciation

Answer 36

Method that allocates an equal portion of depreciable cost of plant assets (cost minus salvage) to each accounting period in its useful life.

Question 37

Total asset turnover

Answer 37

Measure of a company's ability to use its assets to generate sales; computed by dividing net sales by average total assets.

Question 38

Trademark or trade (brand) name

Answer 38

Symbol, name, phrase, or jingle identified with a company, product, or service.

Question 39

Units-of production depreciation

Answer 39

Method that charges a varying amount to depreciation expense for each period of an asset's useful life depending on its usage.

Question 40

Useful life

Answer 40

Length of time an asset will be productively used in the operations of a business; also called service life or limited life.