Chapter 8

Question 1

tangible assets

Answer 1

physical substance- usually plant, property, and equipment; land, buildings, machinery, fixtures, equipment

Question 2

intangible assets

Answer 2

trademarks and patents, do not have physical substance but do provide owner with specific rights and priviledges

Question 3

capital expenditures

Answer 3

recorded as an asset and must be (1) owned and controlled by the company (2) expected to provide future benefits

Question 4

capitalized interest

Answer 4

portion of interest expense incurred during construction period should be capitalized as part of asset’s cost

Question 5

depreciation

Answer 5

systematic allocation of portion of asset’s cost to each period

Question 6

accumulated depreciation

Answer 6

cost that is allocated to a given period is recorded as depreciation expense in income statement; contra-asset; offsets balance in corresponding asset account

Question 7

useful life

Answer 7

period of time over which asset is expected to provide economic benefits to company

Question 8

residual (salvage) value

Answer 8

expected realizable value of asset at the end of useful life

Question 9

depreciation base

Answer 9

also known as non recoverable cost; portion of cost that is depreciated; capitalized cost of the asset less estimated residual value

Question 10

straight-line method of depreciation

Answer 10

recorded evenly over the useful life of the asset

Question 11

depreciation rate

Answer 11

1/useful life

Question 12

book value (BV)

Answer 12

also known as net book value or carrying value; cost less accumulated depreciation; does NOT refer to fair value

Question 13

accelerated depreciation

Answer 13

record more depreciation expense in early years of asset’s useful life and less expense in later years

Question 14

double-declining-balance (DDB) method

Answer 14

accelerated depreciation method that computes depreciation rate as 2x the straight method

Question 15

units-of-production method

Answer 15

useful life of asset defined in terms of number of units of service provided by the asset

Question 16

wasting assets

Answer 16

asset is consumed as it is used

Question 17

depletion

Answer 17

process of transferring costs from resource account into inventory

Question 18

depletion rate per unit consumed formula

Answer 18

acquisition cost-residual value/estimated quantity of resource available

Question 19

gain or loss on asset sale formula

Answer 19

proceeds from sale-book value of asset sold

Question 20

impairment

Answer 20

comparing sum of expected future (undiscounted) cash flows from asset with its net book value

if expected cash flows > net book value, no impairment

if expected cash flows < net book value, impairment; write down to current fair value

Question 21

restructuring costs

Answer 21

impairment charges often part of this along with future costs of workforce reductions

Question 22

PPE turnover (PPET) equation

Answer 22

sales revenue/average PPE, net

Question 23

percent depreciated formula

Answer 23

accumulated depreciation/cost of depreciable assets

Question 24

trademark

Answer 24

registered name, logo, package design, image, jingle, or slogan associated with a product

Question 25

franchise

Answer 25

contractual agreement that gives a company the right to operate a particular business in an area for a particular period of time

Question 26

definite life

Answer 26

examples include patents and franchise right; must be amortized over expected useful life

Question 27

amortization

Answer 27

systematic allocation of costs of intangible assets, similar to depreciation of tangible assets

Question 28

goodwill

Answer 28

excess of purchase price paid for a company over the fair value of its identifiable assets (including identifiable intangible assets); has indefinite life