Chapter 9

Question 1

are long-lived, tangible assets used in the operations of a business

Answer 1

Property, plant, and equipment (P P&E)
Examples:
Land
Buildings
Equipment
Furniture
Fixtures
Automobiles

Question 2

____ states that acquired assets and services should be recorded at their actual costs.

Answer 2

cost principle

Question 3

____ means that an asset account was debited (increased) because the company acquired an asset.

Answer 3

capitalized

Question 3

total market value =

Answer 3

land market value + building market value

Question 3

percentage of total value =

Answer 3

land market value / total market value

Question 4

_____ increase the asset’s capacity or efficiency or extends the asset’s useful life.

Answer 4

Capital expenditures

Question 5

_____ are expenses incurred to maintain the asset in working order.

Answer 5

Revenue expenditures

Question 6

Capital Expenditure:

Answer 6

debit an asset account

Question 7

Revenue Expenditure:

Answer 7

debit an expense account

Question 8

____ matches the expense against the revenue generated from using an asset.

Answer 8

depreciation

Question 9

. An asset is ___ when a newer asset can perform the job more efficiently.

Answer 9

obsolete

Question 10

how long the company expects it will use the asset.

Answer 10

useful life

Question 11

the expected value of a depreciable asset at the end of its useful life.

Answer 11

residual value

Question 12

depreciable cost formula:

Answer 12

cost - estimated residual value

Question 13

allocates an equal amount of depreciation to each year and is computed as follows:

Answer 13

straight-line method

Question 14

straight line depreciation =

Answer 14

(cost - residual value) / useful life

Question 15

Depreciation expense is reported on the _____ statement.

Answer 15

income

Question 16

book value =

Answer 16

cost - accumulated depreciation

Question 17

allocates a varying amount of depreciation each year based on the asset’s usage.

Answer 17

units-of-production method

Question 18

units of production method:

Answer 18

1st depreciation per unit

then units of production depreciation

Question 19

depreciation per unit =

Answer 19

(cost - residual value) / useful life in units

Question 20

units of production depreciation =

Answer 20

depreciation per unit * current year usage

Question 21

multiplies an asset’s decreasing book value by a constant percentage that is twice the straight-line depreciation rate.

Answer 21

double-declining-balance method

Question 22

expenses more of the asset’s cost near the start of an asset’s life and less at the end of its useful life.

Answer 22

accelerated depreciation method

Question 23

double declining balance depreciation =

Answer 23

(cost - accumulated depreciation) * 2 * (1 / useful life)

Question 24

Under ____ assets are divided into specific classes such as 3-year, 5-year, 7-year, and 39-year property.

Answer 24

Modified Accelerated Cost Recovery System (M A C R S)

Question 25

are assets that come from the earth that are consumed.

Answer 25

natural resources

Question 26

is the process by which businesses spread the allocation of a natural resource’s cost to expense over its usage.

Answer 26

depletion

Question 27

depletion per unit =

Answer 27

(cost - residual value) / estimated total values

Question 28

depletion expense =

Answer 28

depletion per unit * number of units extracted

Question 29

are assets that have no physical form

Answer 29

intangible assets

Patents
Copyrights
Trademarks
Other creative works

Question 30

the allocation of the cost of an intangible asset to expense over its useful life.

Answer 30

amortization

Question 31

occurs when the fair value of an asset is less than the book value.

Answer 31

impairment

Question 32

is an intangible asset that is a federal grant conveying an exclusive20-year right to produce and sell an invention.

Answer 32

patent

Question 33

amortization expense =

Answer 33

(cost - residual value) / useful life

for most intangibles, the residual value will be 0

Question 34

is the exclusive right to reproduce and sell a book, a musical composition, a film, another work of art, or intellectual property.

Answer 34

copyright

Question 35

is an asset that represents distinctive identifications of products or services.

Answer 35

trademark

also called a trade name

Question 36

are privileges granted by a business to sell goods or services under specified conditions.

Answer 36

franchises

Question 37

____ are privileges granted by a government to use public property in performing services.

Answer 37

licenses

Question 38

is the value paid above the net worth of a company’s assets and liabilities.

Answer 38

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.

Question 39

measures the amount of net sales generated for each average dollar of total assets invested.

Answer 39

asset turnover ratio

Question 40

asset turnover ratio =

Answer 40

net sales revenue / average total assets