Chapter 6 Flashcards
Assets that are used for two or more accounting periods are
long’operation assets
The term used to recognize expense for property, plant, and equipment is
Depreaciation
Natural resources are normally classified as
Long’term assets
The term used when recognizing expense for intangible assets with identifiable useful lives is
Amortization
Assets that are used relatively quickly (within a single accounting period) are called short-term or
Current assets
The purchase price plus any costs necessary to get an asset in the location and condition for its intended use is called the
Historical cost concept
Although they may be represented by physical documents, ____ assets are, rights or privileges that cannot be seen or touched.
Intangible
The cost of a building includes
Purchase price
Sales taxes
Title search and transfer document costs
realtor’s and attorneys deed
Cost for removal of old building
Grading costs
Renovation costs
Property, plant and equipment is sometimes called plant assets or
fixed assets
Acquiring a group of assets in a single transaction is known as a(n)
basket purchase
Natural resources include ______
timber
glod mine
tone quarry
Intangible assets with an identifiable useful life include
patents and copyrights
100,000 ÷ $500,000 × $460,000 = 92,000 for land
400,000 ÷ $500,000 × $460,000 = 368,000 for the building
An asset must be recorded at the amount paid for it under the Blank______ concept.
Historical cost
Cost of Land
Purchase price
Sales taxes
title search and transfer doc costs
Realtor’s and attorny’s fees
Cost for removal of old buildings
Grading costs
When assets are acquired in a basket purchase, accountants commonly allocate the purchase price using the relative
Fair market value method
The depreciable cost of an asset is the cost of the asset
minus the salvage value
The term used to recognize expense for natural resources is
Depletion
The Black Limo Company (BLC) purchased a limo on January 1 of Year 1. The limo cost $48,000. It had an expected useful life of 4 years and a $8,000 salvage value. Assuming BLC uses straight-line depreciation, depreciation expense for Year 1 is $
(48000 - 8000)/4 = 10000
Buck Company purchased a computer and a desk for $9,000 cash. An appraiser determined the fair market values to be $3,000 for the computer and $7,000 for the desk. Based on this information, the assets should be recorded as $
- Determine percentages
3000/10000=0.30
7000/10000 =0.70 - Allocation
0.30 * 9000 = 2700
0.70 * 9000 = 6300
The purchase price plus any costs necessary to get an asset in the location and condition for its intended use is called the
historical cost
The book value of a long-term tangible asset is determined by
substracting the balance in the accumulated depreciation account from the balance in the associated asset account
Cost of equipment
1 - purchase price
2 - sales taxes
3 - delivery costs
4 - installation costs
5 - costs to adapt for intended use
Recognizing depreciation expense affects the
income statement
balnce sheet
The salvage value of an asset is the
Expected maket value of a fully depreciated asset
The Black Limo Company (BLC) purchased a limo on January 1 of Year 1. The limo cost $48,000 cash. It had an expected useful life of 4 years and a $8,000 salvage value. Assuming BLC uses straight-line depreciation, cash flow from operating activities shown on the Year 2 statement of cash flows is
1 - Find depreciation expense
(48000 - 8000)/4 = 10000
2- Find book value
48000 - 10000 = 38000
0 because the cash paid for the limo was shown on the Year 1 cash statement as an investing activity. There is no cash flow associated with depreciation
Because the double-declining balance method recognizes depreciation expense faster than straight-line, it is called a(n)
Accelerated depreciation method
Lopez Company purchased land and a building for $460,000. A real estate appraiser determined the fair market value was $100,000 for the land and $400,000 for the building. Based on this information, Lopez should record the land cost as
$100,000 ÷ $500,000 × $460,000 = $92,000 for land and
$400,000 ÷ $500,000 × $460,000 = $368,000 for the building
The Black Limo Company (BLC) purchased a limo on January 1 of Year 1. The limo cost $48,000. It had an expected useful life of 4 years and a $8,000 salvage value. Assuming BLC uses double-declining-balance depreciation, depreciation expense for Year 2 is
1 - Staight-line rate = 1/4 = 0.25
2 - Determine the double-declining-balance rate = 0.25 * 2 = 50
3 - Determine the depreciation expense
year 1 = 48000 * 0.5 = 24000
year 2 = (48000 - 24000) * 0.5 = 12000
Carrying value is another term used for the
book value of a long-term tangible asset
When a company expects heavy asset use and high revenues in the early years of an asset’s life and lower revenues and use in the later years, the best depreciation method to smooth out the amount of net income reported each year is
Double-declining balance
When a company recognizes depreciation expense
decreases assets and stk equity
increases expense
lowers income statement
increases accumulated depreciation
When revenues fluctuate from year to year, the best depreciation method to achieve the matching objective is
units-of-production
The Black Limo Company (BLC) purchased a limo on January 1 of Year 1. The limo cost $48,000. It had an expected useful life of 4 years and a $8,000 salvage value. Assuming BLC uses straight-line depreciation, accumulated depreciation shown on the Year 2 balance sheet is
($48,000 cost - $8,000) ÷ 4 = $10,000 per year. The accumulated depreciation account accumulates from year to year. At the end of Year 2, the balance in the account is $20,000 ($10,000 from Year 1 + $10,000 from Year 2).
The Black Limo Company (BLC) purchased a limo on January 1 of Year 1 at a cost of $48,000. The limo had a $8,000 salvage value. BLC expected to drive the limo for 100,000 miles before disposing of it. Actual miles driven per year were as follows: 30,000 in Year 1, 40,000 in Year 2, 20,000 in Year 3, and 25,000 in Year 4. Based on this information, depreciation expense for Year 4 was
($48,000 cost - $8,000 salvage) ÷ 100,000 miles = $0.40 per mile; At the end of Year 3, accumulated depreciation is 90,000 miles × $0.40 or $36,000, so only $4,000 of expense is recorded for Year 4.
Which depreciation methods always recognizes more depreciation in the early years of an asset’s useful life and less depreciation in the later years of its useful life?
double-declining balance
The Black Limo Company (BLC) purchased a limo on January 1 of Year 1. The limo cost $48,000. It had an expected useful life of 4 years and a $8,000 salvage value. Assuming BLC uses double-declining-balance depreciation, depreciation expense for Year 1 is
($48,000 cost - $0 accumulated depreciation) × 50% = $24,000 Year 1
True Stories Company sold the rights to a documentary film. They are expecting significant revenue in Year 1. The revenue stream is expected to decrease steadily until it reaches zero in Year 5. Based on this Which depreciation method should be used to most closely match the expense to the revenue stream the asset produces?
Double-declining balance
Depreciation expense is based on actual asset usage when using
Units-of-production only
Long term assets
Coal mine
Office equipment
Copyright
Delivery van
Land used in the business
Goodwill
Filing cabinet
Tax library of accounting firm
Long term operation assets
Goodwill: intagible
Carver Incorporated purchased a building and the land on which the building is situated for a total cost of $700,000 cash. The land was appraised at $320,000 and the building at $480,000.
What is the accounting term for this type of acquisition?
Basket purchase
