Chapter 10 Terms

Question 1

Accelerated-Depreciation Method

Answer 1

Depreciation method that produces higher depreciation expense in the early years than in the later years

Question 2

Additions & Improvements

Answer 2

Costs incurred to increase the operating efficiency, productive capacity, or useful life of a plant asset

Question 3

Amortization

Answer 3

The allocation of the cost of an intangible asset to expense over its useful life in a systematic and rational manner

Question 4

Asset Turnover

Answer 4

A measure of how efficiently a company uses its assets to generate sales; calculated as net sales divided by average total assets

Question 5

Capital Expenditures

Answer 5

Expenditures that increase the company’s investment in productive facilities

Question 6

Cash Equivalent Price

Answer 6

The fair value of the asset given up or the fair value of the asset received, whichever is more clearly determinable

Question 7

Copyrights

Answer 7

Exclusive grant from the federal government that allows the owner to reproduce and sell an artistic or published work

Question 8

Declining-Balance Method

Answer 8

Depreciation method that applies a constant rate to the declining book value of the asset and produces a decreasing annual depreciation expense over the useful life of the asset

Question 9

Depletion

Answer 9

The allocation of the cost of a natural resource in a rational and systematic manner over the resource’s useful life

Question 10

Depreciable Cost

Answer 10

The cost of a plant asset less its salvage value

Question 11

Depreciation

Answer 11

The process of allocating to expense the cost of a a plant asset over its useful (service) life in a rational and systematic manner

Question 12

Franchise (License)

Answer 12

A contactual arrangement under which the franchisor grants the franchisee the right to sell certain products, perform specific services, or use certain trademarks or trade names, usually in a designated geographic area

Question 13

Going Concern Assumption

Answer 13

The company will continue in operation for the foreseeable future

Question 14

Goodwill

Answer 14

The value of all favorable attributes that relate to a company that is not attributable to any other specific asset

Question 15

Impairment

Answer 15

A permanent decline in the fair value of an asset

Question 16

Intangible Assets

Answer 16

Rights, privileges, and competitive advantages that result from the ownership of long-lived assets that do not possess physical substance

Question 17

Materiality Concept

Answer 17

If an item would not make a difference in decision-making, a company does not have to follow GAAP in reporting it

Question 18

Natural Resources

Answer 18

Assets that consist if standing timber and underground deposits of oil, gas, and minerals

Question 19

Ordinary Repairs

Answer 19

Expenditures to maintain the operating efficiency and productive life of the long-lived asset

Question 20

Patent

Answer 20

An exclusive right issued by the U.S. Patent Office that enables the recipient to manufacture, sell, or otherwise control an invention for a period of 20 years from the date of the grant

Question 21

Plant Assets

Answer 21

Tangible resources that are used in the operations of the business and are not intended for sale to customers

Question 22

Research & Development (R&D) Costs

Answer 22

Expenditures that may lead to patents, copyrights, new processes, or new products. These costs are expensed as incurred

Question 23

Revenue Expenditures

Answer 23

Expenditures that are immediately charged against revenues as an expense

Question 24

Salvage Value

Answer 24

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

Question 25

Straight-line Method

Answer 25

Depreciation method in which periodic depreciation is the same for each year of the asset’s useful life

Question 26

Trademark (Trade Name)

Answer 26

A word, phrase, jingle, or symbol that identifies a particular enterprise or product

Question 27

Units-of-Activity Method

Answer 27

Depreciation method in which useful life is expressed in terms of the total units of production or use expected from an asset

Question 28

Useful Life

Answer 28

An estimate of the expected productive life, also called service life, of an asset