Chapter 9

Question 1

Accelerated depreciation method

Answer 1

A depreciation method that provides for a higher depreciation amount in the first year of the asset’s use, followed by a gradually declining amount of depreciation.

Question 2

Amortization

Answer 2

The periodic transfer of the cost of an intangible asset to expense or of a bond discount to interest expense.

Question 3

Book value

Answer 3

The difference between the cost of a fixed asset and its accumulated depreciation.

Question 4

Boot

Answer 4

The remaining amount a buyer owes after the trade-in allowance when a fixed asset is traded in for a similar asset.

Question 5

Capital expenditures

Answer 5

The costs of acquiring fixed assets, adding to a fixed asset, improving a fixed asset, or extending a fixed asset’s useful life.

Question 6

Copyright

Answer 6

The exclusive right to publish and sell a literary, artistic, or musical composition.

Question 7

Depletion expense

Answer 7

The process of transferring the cost of natural resources to an expense account.

Question 8

Depreciable cost

Answer 8

The amount of an asset’s cost that will be allocated to depreciation expense over its useful life, determined by the difference between the asset’s initial cost and its residual value.

Question 9

Depreciation

Answer 9

The systematic periodic transfer of the cost of a fixed asset to an expense account during its expected useful life.

Question 10

Double-declining-balance method

Answer 10

A method of depreciation that provides for a declining periodic depreciation expense over the expected useful life of an asset.

Question 11

Expected useful life

Answer 11

The estimated length of time an asset will be used in normal business operations.

Question 12

Fixed asset turnover ratio

Answer 12

The number of sales dollars earned per dollar of fixed assets, computed by dividing sales by the average book value of fixed assets.

Question 13

Fixed assets

Answer 13

Physical resources that are owned and used by a business and are permanent or have a long life; long-term or relatively permanent tangible assets such as equipment, machinery, buildings, and land that are used in normal business operations.

Question 14

Goodwill

Answer 14

An intangible asset that is created from such favorable factors as location, product quality, reputation, and managerial skill.

Question 15

Initial cost

Answer 15

The purchase price of an asset plus all costs to obtain and ready it for use.

Question 16

Intangible assets

Answer 16

Long-term assets that are used in the operations of a business, are not held for sale, and are without physical qualities.

Question 17

Patents

Answer 17

Exclusive rights to produce and sell goods with one or more unique features.

Question 18

Residual value

Answer 18

The estimated value of a fixed asset at the end of its useful life.

Question 19

Revenue expenditures

Answer 19

Costs that benefit only the current period or costs incurred for normal maintenance and repairs of fixed assets.

Question 20

Straight-line method

Answer 20

A method of depreciation that provides for equal periodic depreciation expense over the estimated life of a fixed asset.

Question 21

Trade-in allowance

Answer 21

The amount a seller allows a buyer for a fixed asset that is traded in for a similar asset.

Question 22

Trademark

Answer 22

A name, term, or symbol used to identify a business and its products.

Question 23

Units-of-activity method

Answer 23

A method of depreciation that provides the same amount of depreciation expense for each unit of an asset’s activity, which may be expressed in hours, miles driven, or quantity produced.