Chapter 8

Question 1

Method that produces larger depreciation charges in the early years of an asset’s life and smaller charges in its later years.

Answer 1

ACCELERATED DEPRECIATION METHOD

Question 2

Process of allocating the cost of an intangible asset to expense over its estimated useful life.

Answer 2

AMORTIZATION

Question 3

Asset’s acquisition costs less its accumulated depreciation (or depletion, or amortization); also sometimes used synonymously as the CARRYING VALUE of an account.

Answer 3

ASSET BOOK VALUE

Question 4

Expenditures to make a plant asset more efficient or productive; also called IMPROVEMENTS.

Answer 4

BETTERMENTS

Question 5

Additional costs of plant assets that provide material benefits extending beyond the current period; also called BALANCE SHEET EXPENDITURES.

Answer 5

CAPITAL EXPENDITURES

Question 6

Change in an accounting estimate that results from new information, subsequent developments, or improved judgment that impacts current and future periods.

Answer 6

CHANGE IN AN ACCOUNTING ESTIMATE

Question 7

Right giving the owner the exclusive privilege to publish and sell musical, literary, or artistic work during the creator’s life plus 70 years.

Answer 7

COPYRIGHT

Question 8

All normal and reasonable expenditures necessary to get an asset in place and ready for its intended use.

Answer 8

COST

Question 9

Method that determines depreciation charge for the period by multiplying a depreciation rate (often twice the straight-line rate) by the asset’s beginning-period book value.

Answer 9

DECLINING-BALANCE METHOD

Question 10

Process of allocating the cost of natural resources to periods when they are consumed and sold.

Answer 10

DEPLETION

Question 11

Expense created by allocating the cost of plant and equipment to periods in which they are used; represents the expense of using the asset.

Answer 11

DEPRECIATION

Question 12

Major repairs that extend the useful life of a plant asset beyond prior expectations; treated as a capital expenditure.

Answer 12

EXTRAORDINARY REPAIRS

Question 13

Privileges granted by a company or government to sell a product or service under specified conditions.

Answer 13

FRANCHISES or LICENSES

Question 14

Amount by which a company’s (or a segments’s) value exceeds the value of its individual assets less its liabilities.

Answer 14

GOODWILL

Question 15

Diminishment of an asset value.

Answer 15

IMPAIRMENT

Question 16

Condition in which the capacity of plant assets is too small to meet the company’s production demands.

Answer 16

INADEQUACY

Question 17

Asset life that is not limited by legal, regulatory, contractual, competitive, economic, or other factors.

Answer 17

INDEFINITE LIFE

Question 18

Long-term assets (resources) used to produce or sell products or services; usually lack p hysical form and have uncertain benefits.

Answer 18

INTANGIBLE ASSETS

Question 19

Assets that increase the benefits of land, have a limited useful life, and are depreciated.

Answer 19

LAND IMPROVEMENTS

Question 20

Contract specifying the rental of property.

Answer 20

LEASE

Question 21

Rights the lessor grants to a lessee under the terms of a lease.

Answer 21

LEASEHOLD

Question 22

Alterations or improvements to leased property such as partitions and storefronts.

Answer 22

LEASEHOLD IMPROVEMENTS

Question 23

Party to a lease who secures the right to possess and use the property from another party (the lessor).

Answer 23

LESSEE

Question 24

Party to a lease who grants another party (the lessee) the right to possess and use its property.

Answer 24

LESSOR

Question 25

Depreciation system required by federal tax law.

Answer 25

MODIFIED ACCELERATED COST RECOVERY SYSTEMS (MACRS)

Question 26

Assets physically consumed when used; examples are timber, mineral deposits, and oil and gas fields; also called WASTING ASSETS.

Answer 26

NATURAL RESOURCES

Question 27

Condition in which, because of new inventions and improvements, a plant asset can no longer be used to produce goods or services with a competitive advantage.

Answer 27

OBSOLESCENCE

Question 28

Repairs to keep a plant asset in normal, good operating condition; treated as a revenue expenditure and immediately expensed.

Answer 28

ORDINARY REPAIRS

Question 29

Exclusive right granted to its owner to produce and sell an item or to use a process for 17 years.

Answer 29

PATENT

Question 30

An approximation of the age of plant assets, which is estimated by dividing accumulated depreciation by depreciation expense.

Answer 30

PLANT ASSET AGE

Question 31

Tangible long-lived assets used to produce or sell products and services; also called PROPERTY, PLANT & EQUIPMENT (PP&E), or FIXED ASSETS.

Answer 31

PLANT ASSETS

Question 32

Expenditures reported on the current income statement as an expense because they do not provide benefits in future periods.

Answer 32

REVENUE EXPENDITURES

Question 33

Estimate of amount to be recovered at the end of an asset’s useful life; also called RESIDUAL VALUE or SCRAP VALUE.

Answer 33

SALVAGE VALUE

Question 34

Method that allocates an equal portion of the depreciable cost of plant asset (cost minus salvage) to each accounting period in its useful life.

Answer 34

STRAIGHT-LINE DEPRECIATION

Question 35

Measure of a company’s ability to use its assets to generate sales; computed by dividing net sales by average total assets.

Answer 35

TOTAL ASSET TURNOVER

Question 36

Symbol, name, phrase, or jingle identified with a company, product or service.

Answer 36

TRADEMARK or TRADE (BRAND) NAME

Question 37

Method that charges a varying amount to depreciation expense for each period of an asset’s useful life depending on its usage.

Answer 37

UNITS-OF-PRODUCTION DEPRECIATION

Question 38

Length of time an asset will be productively used in the operations of a business; also called SERVICE LIFE or LIMITED LIFE.

Answer 38

USEFUL LIFE or LIMITED LIFE