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Financial Accounting > CH 7 > Flashcards

CH 7 Flashcards

1
Q

Do long term assets represent a significant part of total assets?

A

Yes

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2
Q

Define acquisitions?

A

a. The act of acquiring something

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3
Q

What is general rule of recording long term assets?

A

a. Recording long term assets at its COST PLUS ALL EXPENDITURES in order to get the asset ready for use.

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4
Q

Define capitalize

A

a. Record an expenditure as an asset

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5
Q

When does a company decide that long term asset is fruitful?

A

a. Amount of time

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6
Q

Define land improvements?

A

a. Improvements to land such as paving, lighting, and landscaping that unlike land itself are subject to depreciation.

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7
Q

Define capitalized interest?

A

a. Interest cost recorded as assets rather than interest expense.

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8
Q

When do you decide whether to add a cost to an asset account or record it as an expense?

A

a. Cost of acquiring an asset
b. Is it getting ready for use
c. It benefits a company in current period

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9
Q

Define basket purchase

A

a. Purchase of more than one asset at the same time for one purchase price.

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10
Q

How do you determine another purchase that is a basket purchase?

A

a. Allocate the total purchase price and estimate fair values of each of individual assets.

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11
Q

What is allocation percentage?

A

a. An estimated fair value divided by total estimated fair value

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12
Q

Define allocate?

A

a. to apportion for a specific purpose

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13
Q

Define natural resources

A

a. Assets like oil, natural gas, and timber that we can physically use up or deplete

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14
Q

How do companies acquire intangible assets?

A

a. Purchase patents, copyrights, etc.

b. create intangible assets internally, by developing a new product or process and obtaining a protective patent.

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15
Q

How do you record intangible assets’ costs?

A

a. Original cost plus all other costs

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16
Q

How do you record intangible assets’ costs (internally)?

A

a. They are recorded on the balance sheet not as intangible asset.

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17
Q

Define patent?

A

a. An exclusive right to manufacture a product or to use a process.

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18
Q

Are legal fees for patents ,that are internal developed, are incurred?

A

no

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19
Q

Define copy rights?

A

a. An exclusive right of protection given to the creator of a published work such as a song, film, patient, photograph, book, or computer software.
b. Cost are identical to patents

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20
Q

Define trademark?

A

a. A word, slogan, or symbol that distinctively identifies a company, product, or service
b. Renew for every 10 years.

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21
Q

How does trademark that is developed internally record it’s costs?

A

a. Not part of intangible asset but through income statement

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22
Q

What are intaniglbe assets for trademarks?

A

a. Attorney fees, registration fees, design cost, successful legal defense, and other costs directly related to securing the trademark.

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23
Q

Can you include estimated value of a trademark to balance sheet?

A

a. No, only legal, registration, and design fees are recorded.

24
Q

Define franchises?

A

a. Local outlets that pay for the exclusive right to use the franchise or company’s name and to sell its products within a specified geographical area.

25
Q

How do you record franchiee’s record?

A

a. Initial fee as an intangible asset

b. Expenses that cost over the life of the franchise agreement

26
Q

Define Goodwill?

A

a. The value of a company as a whole, over and above the value of it identifiable net asset. Goodwill equals the purchase price less the fair value of the net assets acquired.

27
Q

When do you capitalize on an expenditure?

A

a. When it increases in value or benefit for it’s future.

28
Q

When do you expense an expenditure during current period?

A

a. When it is expensed within current period for a benefit.

29
Q

Define repairs and maintenance?

A

a. Expenses that maintain a given level of benefits in the period incurred

30
Q

Define addition?

A

a. Occurs when a new major component is added to an existing asset.

31
Q

Define improvements

A

a. The cost of replacing a major component of an asset

32
Q

Define amortize?

A

a. To pay off gradually ( as a mortgage).

33
Q

Define materiality?

A

a. Large enough to influence a decision

34
Q

Define depreciation?

A

a. Allocation of an asset’s cost of a tangible asset over its service life.

35
Q

Define accumulated depreciation

A

a. A contra asset account representing the total depreciation taken to date.

36
Q

Define book value?

A

a. Equal to the original cost of the asset minus the current balance in accumulated depreciation.

37
Q

Define service life?

A

a. How long the company expects to receive benefits from the asset before disposing of it; it also referred to as “ useful life”.

38
Q

Define residual value?

A

a. The amount the company expects to receive from selling the asset at the end of its service life; also referred to as “salvage value”.

39
Q

Can you record depreciation for land?

A

a. NO, land cannot be USED UP

40
Q

Define straight line method?

A

a. Allocates an equal amount of depreciation to each year of the asset’s service life.
b. Depreciable cost= asset’s cost – estimated residual value

41
Q

What is formula for depreciation expense?

A

a. Asset’s cost-residual value/service life

42
Q

What is benefits of straight line method?

A

a. The benefits we derive from the use of an asset are the same each year but it lack benefit of matching with revenues.

43
Q

Accelerated depreciation method?

A

a. Allocates a higher depreciation in the earlier years of the asset’s life and lower depreciation in later years.

44
Q

Define Declining balance depreciation?

A

a. An accelerated depreciation method that records more depreciation in earlier years and less depreciation in later years.

45
Q

Do declining balance and straight line have different total of depreciation?

A

a. No, it will equal the total amount if both are compared.

46
Q

What is double declining balance depreciation schedule?

A

a. Double straight line rate.

47
Q

How do you find double declining depreciation rate?

A

a. Divide 2 to estimated service life

48
Q

Define activity based method?

A

a. Allocates an asset’s cost based on its use

49
Q

What depreciation model would companies mostly choose?

A

a. Straight line method

50
Q

Define depletion

A

a. Allocation of the cost of a natural resource over its service life.

51
Q

Define MACRS

A

a. IRS’s method to measure income tax

b. Combines declining balance method in early years with straight line in later years to allow for more tax advantage

52
Q

Define amortization

A

a. Allocation of the cost of an intangible asset over its service life.

53
Q

Define return on assets?

A

a. Net income divided by average total assets; measures the amount of net income generated for each dollar invested in assets

54
Q

Define profit margin

A

a. Net income divided by net sales indicated the earnings per dollar of sales

55
Q

Define asset turnover

A

a. Net sales divided by average total assets which measures the sales per dollar of assets invested

56
Q

Define Impairment

A

a. Occurs when the future cash flows generated for a long term asset fall below its book value

57
Q

Define big bath

A

a. Recording all loses in one year to make a bad year even worse

Financial Accounting (11 decks)

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