Chapter 8 Flashcards
A higher amount of depreciation is recorded in the early years and a lower amount in the later years.
Accelerated depreciation
The amount that includes all of the cost normally necessary to acquire an asset and prepare it for its intended use.
Acquisition cost
The original cost of an asset minus the amount of accumulated depreciation.
Book value
A cost that improves the asset and is added to the asset account. “Increases the life of the asset or its productivity”
Capital expenditure
Interest on constructed assets is added to the asset account.
Capitalization of interest
A change in the life of the asset or in its residual value.
Change in estimate
The allocation of the original cost of an asset to the periods benefited by its use.
Depreciation
Depreciation is recorded at twice the straight-line rate, but the balance is reduced each period.
Double-declining-balance method
The excess of the selling price over the asset’s book value.
Gain on Sale of Asset
The excess of the purchase price to acquire a business over the value of the individual net assets acquired.
Goodwill
Assets with no physical properties.
Intangible assets
Costs that are related to land but that have a limited life.
Land improvements
The amount by which selling price is less than book value.
Loss on Sale of Asset
Costs incurred in the discovery of new knowledge.
Research and development costs
A cost that keeps an asset in its normal operating condition and is treated as an expense. “Simply maintains an asset in its normal operating condition”
Revenue expenditure
A method by which the same dollar amount of depreciation is recorded in each year of asset use.
Straight-line method
Depreciation is determined as a function of the number of units the asset produces.
Units-of-production method
When land and a building are purchased together as a group for $100,000 cash at a time when the fair market value of the land is $30,000 and for the building is $90,000 what amount will be recorded in the land account?
$25,000
The cost of land generally includestaxes paid at a time of purchaseoutdoor lot lightingfenceslot pavement
Takes paid at a time of purchase
When a company purchases a truck with cash, it will increasetruck and increase notes payablepurchases and decrease cashtruck and decrease cashtruck and increase accounts payable
truck and decrease cash
a purchase of used equipment costing $7500 requiring an overhaul costing 200 and installation costs of 100 would have which amount of cost basis?7500, 7700, 7800, 7600
$7800
an assest cost 1000 and has a residual value of 500 and a useful life of 5 years or 500 hours. using the straight line method, what is the amount of depreciation for the second year with 260 hours used100, 240, 260, 400
$100
an assest cost 1000 and has a residual value of 500 and a useful life of 5 years or 500 hours. using the units of production method, what is the amount of depreciation for the second year with 260 hours used100, 240, 260, 400
$260
an assest cost 1000 and has a residual value of 500 and a useful life of 5 years or 500 hours. using the double declining method, what is the amount of depreciation for the second year with 260 hours used100, 240, 260, 400
$400
an assest cost 1000 and has a residual value of 500 and a useful life of 5 years or 500 hours. using the double declining balance method, what is the amount of depreciation for the second year with 260 hours used100, 240, 260, 400
$100
the estimated value of a fixed asset at the end of its useful life is calledcarrying value, book value, residual value, market value
residual value
a machine with a book value of 2000 is sold for 3000. when the company records the sale it will
decrease Machine and Accumulated Depreciation - Machine and increase Cash and Gain on Sale of Asset
Sam Co. bought a truck on Jan. 1, 1012 for 60,000. the trucks expected life is 4 years, and its estimated residual value is 8,000. sam co uses straight line depreciation method. on Jan 1, 2014 the truck is sold for 37,000 what is the gain or loss
$3000 Gain
the asset turnover ratio refers to a companys
effective use of assets to generate sales
the period allocation of fixed asset costs to expense is called
depreciation
an asset turnover ration of 2.0 means thatassets are twice as much as salesfor every 2 in sales, there is 1 in assetsfor every 2 in assets, there is a 1 in salesassets are 2
for every 2 in sales there is 1 in assets
the average life and average age of a companys long term assets can be used to indicate
the general condition of a companys long term assets
which of the following formulas is used to calculate the asset turnover ratio?
Net Sales/ Average Total Assets
when a company sells a building for cash, it will increase
cash and decrease accumulated depreciation and building
Acquisition cost - residual value/ life
Straight line depreciation
Acquisition cost - accumulated depreciation =
Book value
Acquisition cost - residual value / total # of units in assets life
Units of production method
100%/ life = %2 x %= %Book value x rate
Double declining method
Types of intangible items
PatentsCopyrightsTrademarksGoodwill
If an intangible asset has a finite life (limited life) it must be recognized
Amortization
Cost involved / life
Calculating amortization on a straight line method
Should a company record amortization on an indefinite life of an intangible asset?
No, record an impairment
Operating activities: cash flow statement Depreciation and amortization: +Gain on sale of asset: -Loss of sale of asset: +
Investing assets: cash flow statement Purchase of asset: -Sale of asset: +
Where should depreciation and amortization be recorded?
Operating activities category of the statement of cash flows as an addition to net income
Property, plant, and equipment / depreciation expense
Average life
Accumulated depreciation / depreciation expense
Average age
