Chapter 9 Flashcards
are long-lived, tangible assets used in the operations of a business
Property, plant, and equipment (P P&E)
Examples:
Land
Buildings
Equipment
Furniture
Fixtures
Automobiles
____ states that acquired assets and services should be recorded at their actual costs.
cost principle
____ means that an asset account was debited (increased) because the company acquired an asset.
capitalized
total market value =
land market value + building market value
percentage of total value =
land market value / total market value
_____ increase the asset’s capacity or efficiency or extends the asset’s useful life.
Capital expenditures
_____ are expenses incurred to maintain the asset in working order.
Revenue expenditures
Capital Expenditure:
debit an asset account
Revenue Expenditure:
debit an expense account
____ matches the expense against the revenue generated from using an asset.
depreciation
. An asset is ___ when a newer asset can perform the job more efficiently.
obsolete
how long the company expects it will use the asset.
useful life
the expected value of a depreciable asset at the end of its useful life.
residual value
depreciable cost formula:
cost - estimated residual value
allocates an equal amount of depreciation to each year and is computed as follows:
straight-line method
straight line depreciation =
(cost - residual value) / useful life
Depreciation expense is reported on the _____ statement.
income
book value =
cost - accumulated depreciation
allocates a varying amount of depreciation each year based on the asset’s usage.
units-of-production method
units of production method:
1st depreciation per unit
then units of production depreciation
depreciation per unit =
(cost - residual value) / useful life in units
units of production depreciation =
depreciation per unit * current year usage
multiplies an asset’s decreasing book value by a constant percentage that is twice the straight-line depreciation rate.
double-declining-balance method
expenses more of the asset’s cost near the start of an asset’s life and less at the end of its useful life.
accelerated depreciation method
double declining balance depreciation =
(cost - accumulated depreciation) * 2 * (1 / useful life)
Under ____ assets are divided into specific classes such as 3-year, 5-year, 7-year, and 39-year property.
Modified Accelerated Cost Recovery System (M A C R S)
are assets that come from the earth that are consumed.
natural resources
is the process by which businesses spread the allocation of a natural resource’s cost to expense over its usage.
depletion
depletion per unit =
(cost - residual value) / estimated total values
depletion expense =
depletion per unit * number of units extracted
are assets that have no physical form
intangible assets
Patents
Copyrights
Trademarks
Other creative works
the allocation of the cost of an intangible asset to expense over its useful life.
amortization
occurs when the fair value of an asset is less than the book value.
impairment
is an intangible asset that is a federal grant conveying an exclusive20-year right to produce and sell an invention.
patent
amortization expense =
(cost - residual value) / useful life
for most intangibles, the residual value will be 0
is the exclusive right to reproduce and sell a book, a musical composition, a film, another work of art, or intellectual property.
copyright
is an asset that represents distinctive identifications of products or services.
trademark
also called a trade name
are privileges granted by a business to sell goods or services under specified conditions.
franchises
____ are privileges granted by a government to use public property in performing services.
licenses
is the value paid above the net worth of a company’s assets and liabilities.
goodwill
It is recorded by an acquiring company when it purchases another company for more than the market value of the net assets acquired.
Goodwill is not amortized.
measures the amount of net sales generated for each average dollar of total assets invested.
asset turnover ratio
asset turnover ratio =
net sales revenue / average total assets
