Chapter 7 Key Words Flashcards

1
Q

Record an expenditure as an asset.

A

capitalize

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2
Q

Improvements to land such as paving, lighting, and landscaping that, unlike land itself, are subject to depreciation.

A

land improvements

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3
Q

Purchase of more than one asset at the same time for one purchase price.

A

basket purchase

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4
Q

Assets like oil, natural gas, and timber that we can physically use up or deplete.

A

natural resources

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5
Q

Long-term assets that lack physical ­substance, and whose existence is often based on a legal contract.

A

intangible assets

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6
Q

An exclusive right to manufacture a product or to use a process.

A

patent

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7
Q

An exclusive right of protection given to the creator of a published work such as a song, film, painting, photograph, book, or computer software.

A

copyright

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8
Q

A word, slogan, or symbol that distinctively identifies a company, product, or service.

A

trademark

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9
Q

Local outlets that pay for the exclusive right to use the franchisor company’s name and to sell its products within a specified geographical area.

A

franchise

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10
Q

equals the purchase price less the fair value of the net assets acquired.

A

goodwill

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11
Q

Expenses that maintain a given level of benefits in the period incurred

A

repairs and maintenance

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12
Q

Occurs when a new major component is added to an existing asset

A

addition

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13
Q

The cost of replacing a major component of an asset.

A

improvement

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14
Q

Large enough to influence a decision.

A

material

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15
Q

Allocating the cost of a long-term asset to an expense over its service life

A

depreciation

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16
Q

A contra asset account representing the total depreciation taken to date.

A

accumulated depreciation

17
Q

An asset’s original cost less accumulated ­depreciation

A

book value

18
Q

How long the company expects to receive benefits from the asset before disposing of it; also referred to as useful life.

A

service life

19
Q

The amount the company expects to receive from selling the asset at the end of its service life; also referred to as salvage value.

A

residual value

20
Q

The pattern in which the asset’s depreciable cost (original cost minus residual value) is allocated over time.

A

depreciation method

21
Q

Allocates an equal amount of depreciation to each year of the asset’s service life.

A

straight-line method

22
Q

Allocates a higher depreciation in the earlier years of the asset’s life and lower depreciation in later years.

A

accelerated depreciation method

23
Q

Allocates an asset’s cost based on its use.

A

activity-based method

24
Q

Net income divided by average total assets; measures the amount of net income generated for each dollar invested in assets.

A

return on assets

25
Net income divided by net sales; indicates the earnings per dollar of sales.
profit margin
26
Net sales divided by average total assets, which measures the sales per dollar of assets invested.
asset turnover
27
Occurs when the future cash flows (future benefits) generated for a long-term asset fall below its book value (cost minus accumulated depreciation).
impairment
28
Recording all losses in one year to make a bad year even worse.
big bath
29