Chapter 6: Non current assets - land, buildings, equipment

Question 1

capitalizing

Answer 1

To record an expenditure as an asset as opposed to expensing the expenditure.

Question 2

expensing

Answer 2

To record an expenditure as an expense as opposed to capitalizing the expenditure.

Question 3

net book value

Answer 3

The difference between the cost of an asset and the accumulated depreciation related to the asset. Sometimes called carrying value.

Question 4

estimated salvage value

Answer 4

An accounting estimate of the resale or disposal value of a noncurrent depreciable asset at the end of its estimated useful life.

Question 5

estimated useful life

Answer 5

An accounting estimate of the number of years a noncurrent depreciable asset is likely to remain in service until it is sold or otherwise disposed of.

Question 6

accelerated depreciation method

Answer 6

A depreciation calculation method that results in greater depreciation expense in the early periods of an asset’s life than in the later periods of its life.

Question 7

Accelerated Cost Recovery System (ACRS)

Answer 7

The method prescribed in the Internal Revenue Code for calculating the depreciation deduction; applicable to the years 1981–1986.

Question 8

Modified Accelerated Cost Recovery System (MACRS)

Answer 8

The method prescribed in the Internal Revenue Code for calculating the depreciation deduction; applicable to years after 1986.

Question 9

proceeds

Answer 9

The amount of cash (or equivalent value) received in a transaction.

Question 10

disposal of depreciable assets formula

Answer 10

sales price (of fixed asset) - net book value (original cost - accumulated depreciation) = gain or loss

Question 11

operating lease

Answer 11

A lease that does not involve any substantial attributes of ownership.

Question 12

financing lease

Answer 12

A lease, usually long term, that has the effect of financing the acquisition of an asset. Sometimes called a finance lease, and formerly referred to as a capital lease.

Question 13

present value

Answer 13

The value now of an amount to be received or paid at some future date, recognizing an interest (or discount) rate for the period from the present to the future date.

Question 14

intangible asset

Answer 14

A long-lived asset represented by a contractual right, or an asset that is not physically identifiable.

Question 15

amortization

Answer 15

The process of spreading the cost of an intangible asset over its useful life.

Question 16

leasehold improvement

Answer 16

An amortizable intangible asset represented by the cost of improvements made to a leasehold by the lessee.

Question 17

patent

Answer 17

An amortizable intangible asset represented by a government-sanctioned monopoly over the use of a product or process.

Question 18

trademark

Answer 18

An amortizable intangible asset represented by a right to the exclusive use of an identifying mark.

Question 19

copyright

Answer 19

An amortizable intangible asset represented by the legally granted protection against unauthorized copying of a creative work.

Question 20

goodwill

Answer 20

A nonamortizable intangible asset arising from the purchase of a business for more than the fair value of the net assets acquired. Goodwill is the present value of the expected earnings of the acquired business in excess of the earnings that would represent an average return on investment, discounted at the investor’s required rate of return for the expected duration of the excess earnings.

Question 21

depletion

Answer 21

The accounting process recognizing that the cost of a natural resource asset is used up as the natural resource is consumed.

Question 22

future value

Answer 22

The amount that a present investment will be worth at some point in the future, assuming a specified interest rate and the reinvestment of interest in each period that it is earned.

Question 23

annuity

Answer 23

The receipt or payment of a constant amount over fixed periods of time, such as monthly, semiannually, or annually.

Question 24

discount rate

Answer 24

The interest rate used in a present value calculation.