Chapter 11

Question 1

amortization

Answer 1

The process used to allocate the cost of an intangible asset to the accounting periods benefited.

Question 2

betterment

Answer 2

Expenditures that improve or increase the service potential of an asset even beyond its original new condition; such costs may be capitalized by increasing the asset’s cost.

Question 3

commercial substance

Answer 3

The quality of an exchange transaction such that it changes the future cash flow potential of the entity.

Question 4

depletion

Answer 4

The process used to allocate the cost of a natural resource asset to the accounting periods benefited.

Question 5

exchange transaction

Answer 5

Trading one asset for another; to be booked at fair value if the transaction has commercial substance.

Question 6

impairment

Answer 6

When the carrying amount of an asset is not recoverable from its future cash flow.

Question 7

intangible asset

Answer 7

Lon-term asset that lacks physical existence; contract rights, copyrights, patents, trademarks, etc.

Question 8

natural resources

Answer 8

Oil and gas reserves, mineral deposits, thermal energy sources, and standing timber are just a few examples of such assets that a firm my own.

Question 9

replacement

Answer 9

A restoration of an asset, at least partially, to its original condition; such costs may be capitalized by reducing accumulated depreciation.

Question 10

revenue expenditure

Answer 10

Not a capital expenditure; to be expensed as incurred.