Chapter 8 Key Terms and Definitions

Question 1

What is amortization?

Answer 1

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

Question 2

What are betterments?

Answer 2

Expenditures to make a plant asset more effiecient or productive; also called improvements.

Question 3

What are Capital Expenditures?

Answer 3

Additional costs of plant assets that provide material benefits extending beyond the current period; also called balance sheet expenditures.

Question 4

What is a copyright?

Answer 4

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

Question 5

What are cost?

Answer 5

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

Question 6

What is depletion?

Answer 6

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

Question 7

What is depreciation>?

Answer 7

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

Question 8

What are Extraordinary Repairs?

Answer 8

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

Question 9

What is a franchise?

Answer 9

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

Question 10

What is goodwill?

Answer 10

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

Question 11

What is impairment?

Answer 11

Diminishment of an asset value.

Question 12

What is an inadequacy?

Answer 12

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

Question 13

What is indefinite life?

Answer 13

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

Question 14

What are intangible assets?

Answer 14

Long-term assets used to produce or sell products or services; usually lack physical form and have uncertain benefits.

Question 15

What are land improvements?

Answer 15

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

Question 16

What is a lease?

Answer 16

Contract specifying the rental of property?

Question 17

What is a leasehold?

Answer 17

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

Question 18

What are leasehold improvements?

Answer 18

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

Question 19

Who is the lessee?

Answer 19

The party to a lease who secures the right to possess and us the property from another party.

Question 20

Who is the lessor?

Answer 20

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

Question 21

What is obsolescence?

Answer 21

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.

Question 22

what are ordinary repairs?

Answer 22

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

Question 23

What is a patent?

Answer 23

Exclusive right granted to its owner to produce and sell an item or to use a process for 20 years.

Question 24

What is the age of a plant asset?

Answer 24

Estimate of the age of a company’s plant assets, computed by dividing accumulated depreciation by depreciation expense.

Question 25

What are plant assets?

Answer 25

Tangible long lived assets used to produce or sell products and services; also called propert, plant and equipment or fixed assets.

Question 26

What are revenue expenditures?

Answer 26

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

Question 27

What is salvage value?

Answer 27

Estimate of amount to be recovered at the end of an assets useful life;also called residual value.

Question 28

What is straight line depreciation?

Answer 28

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

Question 29

What is total asset turnover?

Answer 29

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