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ACCT 2010 > Chapter 9 > Flashcards

Chapter 9 Flashcards

1
Q

Assets that are used actively in the operations of the business, and that are expected to benefit the operations into the future.

A

Long-Lived Assets

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2
Q

Two Major Categories of Long Lived Assets:

A

(1) Tangible Plant Assets

(2) Intangible Assets

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3
Q

Long-term assets that have physical substance.

A

Tangible Plant Assets

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4
Q

Long-lived assets without

physical substance.

A

Intangible Assets

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5
Q

Land, buildings, equipment, furniture, and fixtures

A

Long Lived Tangible Assets

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6
Q

Land is _______ depreciated.

A

NOT

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7
Q

Buildings, equipment, furniture, and fixtures ______ depreciated

A

ARE

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8
Q

Allocates the cost of a long-lived asset over the periods benefited by its use.

A

Depreciation

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9
Q

Trademarks, copyrights, patents, licensing rights, technology, franchises, and goodwill

A

Intangible Assets

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10
Q

Intangibles with a limited life, such as patents and copyrights, _____ subject to amortization.

A

ARE

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11
Q

Intangibles with an unlimited (or indefinite) life, such as goodwill and trademarks, _______ amortized.

A

ARE NOT

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12
Q

________ is a process of allocating cost over the useful life, similar to depreciation.

A

Amortization

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13
Q

Stages in an Asset’s Life:

A

(1) Asset Acquired
(2) Assets are used to produce revenue
(3) Assets are disposed of

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14
Q

Cost

A

Asset Acquired

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15
Q

Depreciation and Impairment

A

Assets are Used to Produce Revenue

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16
Q

Gain or Loss

A

Assets are Disposed of

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17
Q

Cost of Tangible Asset includes:

A

(1) Purchase Price

(2) All costs necessary to get the asset in place and ready for its intended use

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18
Q

Recording acquisition costs as assets is called ______ the costs.

A

Capitalizing

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19
Q

Finance charges _____ included in the cost of an asset.

A

ARE NOT

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20
Q

The total cost of a combined purchase of land and building is allocated in proportion to their __________.

A

Relative Market Values

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21
Q

Types of Expenditures:

A

(1) Ordinary repairs and maintenance

(2) Extraordinary repairs, replacements, and additions

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22
Q

(1) Relatively small, recurring expenditures that maintain normal operating activities
(2) Do not increase productivity
(3) Do not extend life beyond original estimate

A

Ordinary Repairs and Maintenance

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23
Q

Accounting treatment for ordinary repairs and maintenance:

A

Expense

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24
Q

(1) Relatively large, infrequent expenditures such as major overhauls or replacements of major components
(2) May extend useful life
(3) May increase productivity or efficiency

A

Extraordinary repairs, replacements and additions

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25
Q

Accounting treatment for extraordinary repairs, replacements, and additions:

A

Capitalize

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26
Q

(1) Non-current assets without physical substance.
(2) Often provide exclusive rights or privilege’s
(3) Useful lie is often difficult to determine
(4) Usually acquired for operational use.

A

Intangible Assets

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27
Q

Trademarks, Copyrights, Patent, Licensing, Rights, Technology, Assets, Franchise, Goodwill

A

Intangible Assets

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28
Q

Intangible assets are normally recorded at the __________ plus any legal or related fees.

A

Purchase Price

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29
Q

_______ is the systematic write-off of the cost of an intangible asset over its useful or legal life, whichever is shorter.

A

Amortization

30
Q

Goodwill and trademarks have unlimited (or indefinite) lives and are not _______.

A

Amortized

31
Q

Journal Entry for Amortization:

A

Dr. Amortization Expense

Cr. Intangible Asset Account

32
Q

Created when one company buys another company.

A

Goodwill

33
Q

True or False: If the purchase price of the company is greater than the fair value of the net assets and liabilities acquired, we have goodwill associated with the transaction.

A

True

34
Q

Purchase a Patent Journal Entry:

A

Dr. Amortization Expense

Cr. Accumulated Amortization or the Asset Account

35
Q

_______ is a process of cost allocation. We allocate the cost of the asset to expense over its useful life in some rational and systematic manner. We do not want to confuse asset valuation, an economic concept, with allocation.

A

Depreciation

36
Q

Depreciation Expense appears on _____.

A

Income Statement

Depreciation for the current year

37
Q

Accumulated Depreciation appears on _____.

A

Balance Sheet

Total of depreciation to date for an asset

38
Q

Acquisition cost appears on _______ and after cost allocation it appears as an expense on the ____.

A

Balance Sheet, Income Statement

39
Q

Depreciation expense ________ the contra asset account Accumulated Depreciation and ______ the expense account Depreciation Expense.

A

Increases, increases

40
Q

Journal Entry for Depreciation:

A

Dr. Depreciation Expense

Cr. Accumulated Depreciation

41
Q

Depreciation calculations require three amounts for each asset:

A

(1) Acquisition cost
(2) Estimated useful life
(2) Estimated residual value

42
Q

Methods to compute depreciation expense:

A

(1) Straight line
(2) Units of production
(3) Declining balance

43
Q

Cost - Residual Value (RV)

A

Depreciable Cost

44
Q

An asset can never be depreciated below this amount

A

Depreciated Cost

45
Q

Must always evaluate and “plug” last period of depreciation

A

Double Declining Method

46
Q

Used when the asset is expected to be used up in equal amounts. Spreads the depreciation expense evenly throughout the periods; IT IS THE SAME EACH PERIOD.

A

Straight Line Method

47
Q

Depreciation Expense = (Cost – Residual Value) / Useful Life

A

Straight Line Method

48
Q

Used when the amount of the asset production varies significantly from period to period; Production can be defined in terms of miles, products, machine hours, etc.

A

Units of Production Method

49
Q

Steps in Calculating Unit of Production Depreciation Rate:

A

(1) Find the Depreciation Rate
Depreciation Rate = (Cost – Residual Value) / Estimated Total Production
(2) Find Depreciation Expense
Depreciation Expense = Depreciation Rate x Actual Production for the Period

50
Q

Depreciation Rate = (Cost – Residual Value) / Estimated Total Production

A

Units of Production Method

51
Q

Depreciation Expense = Depreciation Rate x Actual Production for the Period

A

Units of Production Method

52
Q

Matches higher depreciation expense with higher revenues in the early years of an asset’s useful life when the asset is more efficient.

A

Declining Balance Method

53
Q

Declining Balance Method Early Years

A

Depreciation Expense: High

Repair Expense: Low

54
Q

Declining Balance Method Later Years:

A

Depreciation Expense: Low

Repair Expense: High

55
Q

Focuses on the overall ownership of the asset; attempts to match depreciation expense with repairs and maintenance expenditures. Reports MORE depreciation expense in the early years when asset is more efficient and less in the later years.

A

Double Declining Balance Method

56
Q

Calculating Double Declining Balance:

A

Depreciation Expense = ((Cost – Accumulated Depreciation) x 2) / Useful Life

Ignores residual value for the calculation.

BUT…be CAUTIOUS of the LAST year of depreciation expense –
need to make sure BV = RV, which will require a manual calculation

57
Q

Double Declining Balance Method for Depreciation Expense

A

Last year (final year) of depreciation expense = Current Book Value – Residual Value

58
Q

When a plant asset is acquired during the year, depreciation is calculated for the __________the asset is owned.

A

Fraction of the year

59
Q

(1) Update depreciation through date of disposal

(2) Compute gain or loss on disposal

A

Disposal of Asset

60
Q

_________, in the early years of an asset’s useful life, results in higher depreciation expense, lower net income, and lower book value than would result using straight-line depreciation.

A

Accelerated Depreciation

61
Q

Selling an asset with a ____ book value, resulting from accelerated depreciation, might result in a ____.

A

Low; Gain

62
Q

Selling the same asset with a ______ book value, resulting from straight-line depreciation, might result in a _____.

A

Higher; Loss

63
Q

(Net Sales Revenue) / Average Net Fixed Assets =

A

Fixed Asset Turnover

64
Q

(Beginning Fixed Assets + Ending Fixed Assets) / 2 =

A

Average Net Fixed Assets

65
Q

Measures the sales dollars generated by each dollar invested in fixed assets.

A

Fixed Asset Turnover Ratio

66
Q

Gain or Loss Calculation

A

Selling price (cash received) - Book Value (cost – accumulated depreciation)

67
Q

Journal Entry when Selling Price equals Book Value:

A

Dr. Cash (+A)
Dr. Accumulated Depreciation (+A)
Cr. Asset (-A)

68
Q

Journal Entry with Gain:

A

Dr. Cash (+A)
Dr. Accumulated Depreciation (+A)
Cr. Asset (-A)
Cr. GAIN on disposal (+R)

69
Q

Journal Entry with Loss:

A

Dr. Cash
Dr. Accumulated Depreciation
Dr. LOSS on disposal
Cr. Asset

70
Q

Selling price > Book Value

A

Gain

71
Q

Selling price < Book Value

A

Loss

72
Q

Selling price = Book Value

A

Neither Loss or Gain

ACCT 2010 (15 decks)

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