Bookkeeping 19

Question 1

1. The amount of profit or loss for the period should equal:

Answer 1

the increase or decrease, respectively, of the Owner’s Equity (Capital) for the period.

Question 2

2. What is a CONTRA ASSET account?

Answer 2

It offsets another, RELATED, account with which it is paired.

Question 3

3. If the related account to the CONTRA account is an ASSET account, then the CONTRA account is used to:

Answer 3

OFFSET (REDUCE) it with a CREDIT BALANCE.

Question 4

4. If the RELATED account to the CONTRA account is a LIABILITY account, then the CONTRA LIABILITY account is used to:

Answer 4

OFFSET (INCREASE) the LIABILITY ACCOUNT with a Debit balance.

Question 5

5. The most common CONTRA account is:

Answer 5

The ACCUMULATED DEPRECIATION account, which offsets the FIXED ASSET account.

Question 6

6. What is a FIXED ASSET?

Answer 6

It is an item with a USEFUL LIFE greater than one reporting period, and which exceeds an entity’s MINIMUM CAPITALIZATION LIMIT.

Question 7

7. What is the CAPITALIZATION LIMIT?

Answer 7

It is the dollar amount paid for an asset, above which an entity records it as a long term asset. If an entity pays less than the capitalization limit for an asset, it charges the asset to EXPENSE in the period incurred. Also known as the Cap Limit.

Question 8

8. A FIXED ASSET is not purchased with the intent of:

Answer 8

immediate resale, but rather for productive use within the entity.

Question 9

9. What are some examples of GENERAL CATEGORIES of FIXED ASSETS:

Answer 9

1. Buildings
2. Computer equipment
3. Computer software
4. Furniture and Fixtures.
5. Intangible assets
6. Land
7. Leasehold improvements
8. Machinery

Question 10

10. FIXED ASSETS are initially recorded as ASSETS, and are then subject to the following GENERAL TYPES of accounting transactions:

Answer 10

1. PERIODIC DEPRECIATION (for tangible assets) or AMORTIZATION (for intangible assets).
2. IMPAIRMENT WRITE-DOWNS (if the value of an asset declines below its net book value).
3. ELIMINATION (once the asset is disposed of).

Question 11

11. The FIXED ASSET account contains the acquisition cost of a NUMBER OF FIXED ASSETS, while the CONTRA ACCOUNT (Accumulated Depreciation) contains:

Answer 11

The SUM TOTAL OF ALL THE DEPRECIATION EXPENSE that has been charged against those assets over time.

Question 12

12. What are Leasehold Improvements?

Answer 12

Improvements performed on a leased property, such as additions, alterations, remodeling, or renovations.

For accounting purposes, all leasehold improvements are capitalized (recorded as an asset with a corresponding liability) and amortized over the remaining life of the lease term or the life of the improvement (whichever is shorter). Upon termination of the lease, such improvements normally become the property of the owner (lessor) without any cost or obligation.