Chapter 9

Question 1

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

Answer 1

Long-Lived Assets

Question 2

Two Major Categories of Long Lived Assets:

Answer 2

(1) Tangible Plant Assets

(2) Intangible Assets

Question 3

Long-term assets that have physical substance.

Answer 3

Tangible Plant Assets

Question 4

Long-lived assets without

physical substance.

Answer 4

Intangible Assets

Question 5

Land, buildings, equipment, furniture, and fixtures

Answer 5

Long Lived Tangible Assets

Question 6

Land is _______ depreciated.

Answer 6

NOT

Question 7

Buildings, equipment, furniture, and fixtures ______ depreciated

Answer 7

ARE

Question 8

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

Answer 8

Depreciation

Question 9

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

Answer 9

Intangible Assets

Question 10

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

Answer 10

ARE

Question 11

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

Answer 11

ARE NOT

Question 12

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

Answer 12

Amortization

Question 13

Stages in an Asset’s Life:

Answer 13

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

Question 14

Cost

Answer 14

Asset Acquired

Question 15

Depreciation and Impairment

Answer 15

Assets are Used to Produce Revenue

Question 16

Gain or Loss

Answer 16

Assets are Disposed of

Question 17

Cost of Tangible Asset includes:

Answer 17

(1) Purchase Price

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

Question 18

Recording acquisition costs as assets is called ______ the costs.

Answer 18

Capitalizing

Question 19

Finance charges _____ included in the cost of an asset.

Answer 19

ARE NOT

Question 20

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

Answer 20

Relative Market Values

Question 21

Types of Expenditures:

Answer 21

(1) Ordinary repairs and maintenance

(2) Extraordinary repairs, replacements, and additions

Question 22

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

Answer 22

Ordinary Repairs and Maintenance

Question 23

Accounting treatment for ordinary repairs and maintenance:

Answer 23

Expense

Question 24

(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

Answer 24

Extraordinary repairs, replacements and additions

Question 25

Accounting treatment for extraordinary repairs, replacements, and additions:

Answer 25

Capitalize

Question 26

(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.

Answer 26

Intangible Assets

Question 27

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

Answer 27

Intangible Assets

Question 28

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

Answer 28

Purchase Price

Question 29

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

Answer 29

Amortization

Question 30

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

Answer 30

Amortized

Question 31

Journal Entry for Amortization:

Answer 31

Dr. Amortization Expense | Cr. Intangible Asset Account

Question 32

Created when one company buys another company.

Answer 32

Goodwill

Question 33

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.

Answer 33

True

Question 34

Purchase a Patent Journal Entry:

Answer 34

Dr. Amortization Expense | Cr. Accumulated Amortization or the Asset Account

Question 35

_______ 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.

Answer 35

Depreciation

Question 36

Depreciation Expense appears on _____.

Answer 36

Income Statement | Depreciation for the current year

Question 37

Accumulated Depreciation appears on _____.

Answer 37

Balance Sheet | Total of depreciation to date for an asset

Question 38

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

Answer 38

Balance Sheet, Income Statement

Question 39

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

Answer 39

Increases, increases

Question 40

Journal Entry for Depreciation:

Answer 40

Dr. Depreciation Expense | Cr. Accumulated Depreciation

Question 41

Depreciation calculations require three amounts for each asset:

Answer 41

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

Question 42

Methods to compute depreciation expense:

Answer 42

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

Question 43

Cost - Residual Value (RV)

Answer 43

Depreciable Cost

Question 44

An asset can never be depreciated below this amount

Answer 44

Depreciated Cost

Question 45

Must always evaluate and "plug" last period of depreciation

Answer 45

Double Declining Method

Question 46

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.

Answer 46

Straight Line Method

Question 47

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

Answer 47

Straight Line Method

Question 48

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.

Answer 48

Units of Production Method

Question 49

Steps in Calculating Unit of Production Depreciation Rate:

Answer 49

(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

Question 50

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

Answer 50

Units of Production Method

Question 51

Depreciation Expense = Depreciation Rate x Actual Production for the Period

Answer 51

Units of Production Method

Question 52

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

Answer 52

Declining Balance Method

Question 53

Declining Balance Method Early Years

Answer 53

Depreciation Expense: High | Repair Expense: Low

Question 54

Declining Balance Method Later Years:

Answer 54

Depreciation Expense: Low | Repair Expense: High

Question 55

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.

Answer 55

Double Declining Balance Method

Question 56

Calculating Double Declining Balance:

Answer 56

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

Question 57

Double Declining Balance Method for Depreciation Expense

Answer 57

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

Question 58

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

Answer 58

Fraction of the year

Question 59

(1) Update depreciation through date of disposal | (2) Compute gain or loss on disposal

Answer 59

Disposal of Asset

Question 60

_________, 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.

Answer 60

Accelerated Depreciation

Question 61

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

Answer 61

Low; Gain

Question 62

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

Answer 62

Higher; Loss

Question 63

(Net Sales Revenue) / Average Net Fixed Assets =

Answer 63

Fixed Asset Turnover

Question 64

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

Answer 64

Average Net Fixed Assets

Question 65

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

Answer 65

Fixed Asset Turnover Ratio

Question 66

Gain or Loss Calculation

Answer 66

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

Question 67

Journal Entry when Selling Price equals Book Value:

Answer 67

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

Question 68

Journal Entry with Gain:

Answer 68

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

Question 69

Journal Entry with Loss:

Answer 69

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

Question 70

Selling price > Book Value

Answer 70

Gain

Question 71

Selling price < Book Value

Answer 71

Loss

Question 72

Selling price = Book Value

Answer 72

Neither Loss or Gain