Chapter 10

Question 1

Plant Assets

Answer 1

Tangible assets used in a company’s operations that have a useful life of more than one accounting period
1. must be used in operations
2. must have a useful life extending over more than one accounting period

Question 2

Cost (Plant Assets)

Answer 2

Includes all expenditures necessary to get an asset in place and ready for use (must be normal, reasonable,
(ex: cost of machine plus necessary shipping, assembly, installation, and testing)

Question 3

Land Improvements

Answer 3

Additions to land that have limited useful lives
(ex: parking lots, driveways, walkways, fences, and lighting systems)

Question 4

Depreciation

Answer 4

The process of allocating the cost of a plant asset to expense while it is in use. Does not measure the decline in the asset’s market value or its physical deterioration.
Factors include: cost, salvage value, useful life

Question 5

Salvage Value

Answer 5

an estimate of the asset’s value at the end of its useful life

Question 6

Useful Life

Answer 6

the length of time it is used in a company’s operations (may not be as long as the asset’s total productive life)

Question 7

Straight-Line Depreciation

Answer 7

charges the same amount to each period of the asset’s useful life
Formula:

Question 8

Units-of-Production Depreciation

Answer 8

charges a varying amount for each period depending on an asset’s usage

Question 9

Declining-Balance Method

Answer 9

the most common method of accelerated depreciation

Question 10

Revenue Expenditures

Answer 10

costs that do no materially increase the plant asset’s life or capabilities

Question 11

Capital Expenditures

Answer 11

costs of plant assets that provide benefits for longer than the current period; they increase the asset on the balance sheet

Question 12

Ordinary Repairs

Answer 12

expenditures to keep an asset in good operating condition; do not extend an asset’s useful life or increase its productivity beyond original expectations

Question 13

Betterments

Answer 13

expenditures that make a plant asset more efficient or productive

Question 14

Extraordinary Repairs

Answer 14

expenditures that extend the asset’s useful life beyond its original estimate; their costs are debited to the asset account

Question 15

Discarding Plant Assets

Answer 15

plant assets are discarded when they are no longer useful to the company and have no market value

Question 16

Natural Resources

Answer 16

Assets that are physically consumed when used (ex: timber, mineral deposits, oil)

Question 17

Depletion

Answer 17

the process of allocating the cost of a natural resource to the period when it is consumed

Question 18

Intangible Assets

Answer 18

nonphysical assets used in operations that give companies long-term rights or competitive advantages (ex: patents, copyrights, licenses, leaseholds, trademarks)

Question 19

Limited Life (Intangible Assets)

Answer 19

If an intangible asset has a limited life, its cost is expensed over its estimated useful life using amortization

Question 20

Indefinite Life (Intangible Asset)

Answer 20

If an intangible asset has an indefinite life it is not amortized