CH 7 Flashcards
Do long term assets represent a significant part of total assets?
Yes
Define acquisitions?
a. The act of acquiring something
What is general rule of recording long term assets?
a. Recording long term assets at its COST PLUS ALL EXPENDITURES in order to get the asset ready for use.
Define capitalize
a. Record an expenditure as an asset
When does a company decide that long term asset is fruitful?
a. Amount of time
Define land improvements?
a. Improvements to land such as paving, lighting, and landscaping that unlike land itself are subject to depreciation.
Define capitalized interest?
a. Interest cost recorded as assets rather than interest expense.
When do you decide whether to add a cost to an asset account or record it as an expense?
a. Cost of acquiring an asset
b. Is it getting ready for use
c. It benefits a company in current period
Define basket purchase
a. Purchase of more than one asset at the same time for one purchase price.
How do you determine another purchase that is a basket purchase?
a. Allocate the total purchase price and estimate fair values of each of individual assets.
What is allocation percentage?
a. An estimated fair value divided by total estimated fair value
Define allocate?
a. to apportion for a specific purpose
Define natural resources
a. Assets like oil, natural gas, and timber that we can physically use up or deplete
How do companies acquire intangible assets?
a. Purchase patents, copyrights, etc.
b. create intangible assets internally, by developing a new product or process and obtaining a protective patent.
How do you record intangible assets’ costs?
a. Original cost plus all other costs
How do you record intangible assets’ costs (internally)?
a. They are recorded on the balance sheet not as intangible asset.
Define patent?
a. An exclusive right to manufacture a product or to use a process.
Are legal fees for patents ,that are internal developed, are incurred?
no
Define copy rights?
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
Define trademark?
a. A word, slogan, or symbol that distinctively identifies a company, product, or service
b. Renew for every 10 years.
How does trademark that is developed internally record it’s costs?
a. Not part of intangible asset but through income statement
What are intaniglbe assets for trademarks?
a. Attorney fees, registration fees, design cost, successful legal defense, and other costs directly related to securing the trademark.
Can you include estimated value of a trademark to balance sheet?
a. No, only legal, registration, and design fees are recorded.
Define franchises?
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.
How do you record franchiee’s record?
a. Initial fee as an intangible asset
b. Expenses that cost over the life of the franchise agreement
Define Goodwill?
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.
When do you capitalize on an expenditure?
a. When it increases in value or benefit for it’s future.
When do you expense an expenditure during current period?
a. When it is expensed within current period for a benefit.
Define repairs and maintenance?
a. Expenses that maintain a given level of benefits in the period incurred
Define addition?
a. Occurs when a new major component is added to an existing asset.
Define improvements
a. The cost of replacing a major component of an asset
Define amortize?
a. To pay off gradually ( as a mortgage).
Define materiality?
a. Large enough to influence a decision
Define depreciation?
a. Allocation of an asset’s cost of a tangible asset over its service life.
Define accumulated depreciation
a. A contra asset account representing the total depreciation taken to date.
Define book value?
a. Equal to the original cost of the asset minus the current balance in accumulated depreciation.
Define service life?
a. How long the company expects to receive benefits from the asset before disposing of it; it also referred to as “ useful life”.
Define residual value?
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”.
Can you record depreciation for land?
a. NO, land cannot be USED UP
Define straight line method?
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
What is formula for depreciation expense?
a. Asset’s cost-residual value/service life
What is benefits of straight line method?
a. The benefits we derive from the use of an asset are the same each year but it lack benefit of matching with revenues.
Accelerated depreciation method?
a. Allocates a higher depreciation in the earlier years of the asset’s life and lower depreciation in later years.
Define Declining balance depreciation?
a. An accelerated depreciation method that records more depreciation in earlier years and less depreciation in later years.
Do declining balance and straight line have different total of depreciation?
a. No, it will equal the total amount if both are compared.
What is double declining balance depreciation schedule?
a. Double straight line rate.
How do you find double declining depreciation rate?
a. Divide 2 to estimated service life
Define activity based method?
a. Allocates an asset’s cost based on its use
What depreciation model would companies mostly choose?
a. Straight line method
Define depletion
a. Allocation of the cost of a natural resource over its service life.
Define MACRS
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
Define amortization
a. Allocation of the cost of an intangible asset over its service life.
Define return on assets?
a. Net income divided by average total assets; measures the amount of net income generated for each dollar invested in assets
Define profit margin
a. Net income divided by net sales indicated the earnings per dollar of sales
Define asset turnover
a. Net sales divided by average total assets which measures the sales per dollar of assets invested
Define Impairment
a. Occurs when the future cash flows generated for a long term asset fall below its book value
Define big bath
a. Recording all loses in one year to make a bad year even worse
