Chapter 2 - Property, Equipment, and Other Assets Flashcards
What are the two types of expenditures?
Revenue expenditure
Capital expenditure
What is property and equipment?
Land, building, furnishing and equipment, and groups of improvements
what is operating lease and capital lease?
operating lease is leasing equipment from revenue expenditure. capital lease is leased asset is recorded as an asset on the lessee’s balance sheet
what is contraction in progress?
it represents all labor, materials, advances on contracts, and interest on construction loans that are incurred in the current construction of property and equipment
what is leasehold improvements?
asset that is to be amortized over the remaining life of the lease or the life of the improvement, whichever is shorter.
what is lump sum purchase?
the purchase of two or more assets is made for one price. i.e. land and building.
what are the four depreciation methods?
- Straight-line depreciation
- units of production depreciation
- sum of the years’ digits depreciation
- double declining method
what is the formula for straight line depreciation?
Cost - salvage value / # of years = annual depreciation
what is the formula for units of production depreciation?
cost - salvage value / unit (miles for truck) x used units (miles ran) = depreciation
what is sum of the years’ digits depreciation?
remaining years / sum of years (for 5 years:5+4+3+2+1 = 15) x depreciate cost = depreciation
ex) 1st year = 5/15 x 30,000 = 10,000 2nd year = 4/14 x 30,000 = 8,000
what is double declining method?
when you calculate this, you ignore the salvage value. It will not depreciate below salvage value though.
what is formula for double declining method for $34,000 for 5 year life?
- Calc straight line rate of depreciation; 5year = 100% / 5 year = 20% per year. Double the rate = 40%. yr 1 = 34,000 x 40%
yr 2 = remaining balance x 40%
how do you depreciate china glassware, silver, linen and uniforms?
if it has less than 1 year of life, it should be recorded as a current asset and expensed when it’s used
what if the asset’s useful life is revised?
Simply spread over the remaining balance to remaining year
what are intangible assets?
franchise, trademark, patent, goodwill, copyright
