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jeremy harmon > Chapter 7 Financial Accounting > Flashcards

Chapter 7 Financial Accounting Flashcards

1
Q

What are two categories of long lived assets?

A

Plant Assets

Intangible Assets

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2
Q

What are plant assets?

A

Intangible assets

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3
Q

What are 3 examples of plant assets?

A

Land
Buildings
Equipment

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4
Q

Intangible assets

A

Carry special rights without physical substance

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5
Q

What are 3 examples of Intangible Assets?

A

Patents
Copyrights
Trademarks

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6
Q

In terms of the plant asset account land found on the balance sheet, what is the related expense account on the income statement?

A

None

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7
Q

In terms of the plant asset account buildings and equipment found on the balance sheet, what is the related expense account on the income statement?

A

Depreciation

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8
Q

In terms of the plant asset account furniture and fixtures found on the balance sheet, what is the related expense account on the income statement?

A

Depreciation

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9
Q

In terms of the plant asset account land improvements found on the balance sheet, what is the related expense account on the income statement?

A

Depreciation

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10
Q

In terms of the plant asset account natural resources found on the balance sheet, what is the related expense account on the income statement?

A

Depletion

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11
Q

In terms of the intangibles account found on the balance sheet, what is the related expense account on the income statement?

A

Amortization

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12
Q

Cost of a Plant Asset

A

Sum of all costs incurred to bring the asset to its intended use

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13
Q

What are 4 costs associated with the plant asset land?

A

Purchase price
Commissions
Survey and legal costs
Removal of old buildings

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14
Q

What are 4 costs associated with the plant asset land improvements?

A

Fencing
Paving
Security Systems
Lighting

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15
Q

What are 4 costs associated with the plant asset buildings?

A

Purchase price
Commissions
Sales and other taxes
Repairs and renovation for intended use

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16
Q

What are 4 costs associated with the plant asset machinery and equipment?

A

Purchase price
Insurance in transit
Sales taxes
Installation

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17
Q

Lump-Sum Purchases

A

Companies purchase several assets in a group for one price

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18
Q

How is cost determined in lump-sum purchases?

A

Cost is allocated to individual assets by on their market values

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19
Q

What are capital expenditures not?

A

They are assets NOT expenses

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20
Q

Capital Expenditure

A

Increase capacity or extend life

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21
Q

What are 2 examples of Capital Expenditures?

A

Major overhaul

Building additions

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22
Q

Immediate Expense

A

Maintain or restore to working order

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23
Q

What are 2 examples of Immediate Expenses?

A

Minor repairs

Painting

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24
Q

How does a company determine if an expenditure should be capitalized or expensed?

A

Companies set a dollar amount

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25
What 3 things do you do to measure depreciation on plant assets?
- Plant Assets wear out or grow obsolete over time - The cost of a plant asset is allocated to an expense over its life - Matches expense of using the asset to the revenues the asset helped produce
26
What is the only plant asset that does not have depreciation?
Land because it has an unlimited life
27
What 2 things is Depreciation not?
A process of valuation | A method of setting aside cash to replace assets
28
What are the 3 things needed to measure depreciation?
Cost of the plant asset Estimated useful life Estimated residual value
29
Estimated useful life
How long the company expects to use the asset
30
Estimated residual value
Expected cash value of asset at the end of its life
31
What is another name for residual value?
Salvage Value
32
What value can the residual be?
Zero
33
Depreciable Cost =
Assets cost - Estimated Residual Value
34
What are the 3 Depreciation methods?
Straight Line (S/L) Units of Production (UOP) Double-declining balance (DDB)
35
GO TO STRAIGHT LINE DEPRECIATION SLIDE TO FIGURE OUT HISTORICAL COST
Slide 7-13
36
Each year what is the impact of depreciation?
Accumulated Depreciation increases | Book value decreases
37
Book value =
Cost - accumulated depreciation
38
At the end of the assets life what does book value equal?
Residual Value
39
What can the book value NEVER be below?
Residual Value
40
What Depreciation method to most companies use for external reporting?
Straight-line
41
For tax purposes what do most companies use in terms of depreciation?
Accelerated Depreciation
42
What system do we use for tax?
Modified Accelerated Cost Recovery System (MACRS)
43
Modified Accelerated Cost Recovery System (MACRS
Accelerated system used for big expenses
44
What 2 things do larger deductions in an assets life help?
Reduces Taxes | Increase Cash Flow
45
What can't you do to an asset you don't own?
Depreciate it
46
When is the only time you can depreciate an asset?
During the time period that you own it
47
What are the 3 ways a plant asset can be disposed when a company is done with it?
Discarded Sold Exchanged
48
Discarding a Plant Asset
Get rid of an asset without gaining anything
49
Selling a Plant Asset
Will get something in return for getting rid of the asset
50
Exchanging a Plant Asset
Trading assets for other assets
51
What 2 things do you need to do before accounting for the disposal of the plant asset?
Depreciation is updated | Final Book Value is determined
52
When you sell a Plant Asset if the book value is greater than the cash received it is a ---.
Gain
53
When you sell a Plant Asset if the book value is less than the cash received it is a ---.
Loss
54
A gain in terms of selling a plant asset is...
Is an income statement account, similar to revenue and increases net income
55
A loss in terms of selling a plant asset is...
An income statement account, similar to an expense and decreases net income
56
What are 4 examples of Natural Resources?
Oil Minerals Coal Timber
57
What are the 2 categories of Intangibles?
Finite Lives that can be measured | Indefinite Lives
58
Finite Lives that can be measured is the intangibles...
Estimated useful life
59
Are finite lives amortized?
Yes they are amortized using the straight line method of depreciation
60
Amortization reduces..
The intangible asset in the finite life category
61
There is no...
Accumulated Amortization Account
62
Indefinite Lives of Intangibles
No idea how long the asset will last for
63
What are 2 characteristics of the indefinite live category of intangibles?
Not amortized | Tested annually for loss in value
64
What are 3 examples of intangibles that do not amortize?
Copyrights Trademarks and Trade Names Franchises and Licenses
65
What is an example of an intangible that amortizes?
Patents
66
Patents
Federal grants that give holder exclusive right to produce and sell an invention for 20 years
67
A patent has a ---- year legal life.
20
68
Copyrights
Exclusive right to sell a book, music, file or other work of art; lasts for the life of the author + 70 years
69
Trademarks and Trade Names
Distinctive identification of product or service; a logo or catchphrase
70
Franchises and Licenses
Right to sell a product or service with specific conditions, such as chain restaurants
71
You cannot estimate useful life on ---.
Goodwill
72
What are 3 characteristics of Goodwill?
1. Only recorded when an entire business is purchased (purchase price exceeds fair value of net assets of business) 2. Represents earning power of purchased business 3. Not amortized
73
Historical Cost
What I actually paid for something

jeremy harmon (108 decks)

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