Chapter 9

Question 1

revenue expenditure

Answer 1

costs incurred to acquire a plant asset that are expensed immediately

Question 2

capital expenditures

Answer 2

costs included in a plant asset account

Question 3

cash equivalent price

Answer 3

fair value of the asset given up or fair value of the asset received, whichever is more clearly determinable

Question 4

Costs of land

Answer 4

cash purchase price ,closing costs, real estate brokers’ commissions, accrued property taxes and other liens on the land assumed by the purchaser

Question 5

Land improvements

Answer 5

includes all expenditures necessary to make the improvements ready for their intended use (driveways, parking lots, fences, landscaping, and underground sprinklers) - keep in mind these improvements can depreciate

Question 6

all costs of buildings

Answer 6

all costs related directly to purchase or construction-purchase costs (price, closing costs, brokers’ commissions, remodling/replacing/repairing floor, roof, electric, and plumbing)-construction costs (contract price and payments for architects’ fess, building permits, and excavation costs)

Question 7

costs of equipment

Answer 7

all costs incurred in acquiring the equipment and preparing it for use (purchase price, sales tax, freight charges, insurance during transit paid by the purchaser, expenses required in assembling, installing and testing the unit)

Question 8

journal entry for equipment costs

Answer 8

dr equipment
dr license expense
dr prepaid insurance
cr cash

Question 9

ordinary repairs to ______ the operating efficiency/productive life of the unit is debited to the ________

Answer 9

maintain; maintenance and repairs expense account

Question 10

additions and improvements costs

Answer 10

incurred to increase the operating efficiency, productive capacity, or useful life of a plant asset (dr plant asset effected)

Question 11

advantages of leasing

Answer 11

reduced risk of obsolescence
little or no down payment
shared tax advantages
assets/liabilities not reported

Question 12

depreciation

Answer 12

process of allocating to expense the cost of a plant asset over its useful life in a rational systematic manner (applies to land improvements, buildings, and equipment)

Question 13

factors of depreciation

Answer 13

cost, useful life, and salvage value

Question 14

straight line method of depreciation

Answer 14

depreciable cost = cost-salvage value
depreciable cost/useful life (in yrs) =depreciation expense
depreciable cost x rate =annual expense

Question 15

annual expense (straight line method)

Answer 15

depreciable cost x rate

Question 16

depreciation expense (straight line method)

Answer 16

depreciable cost/useful life in years

Question 17

depreciable cost (straight line method)

Answer 17

cost-salvage value

Question 18

Journal entry for straight line method of depreciation

Answer 18

dr depreciation exp

cr accumulated depreciation

Question 19

declining balance method of depreciation

Answer 19

accelerated method
decreasing annual depreciation expense over the asset’s useful life
declining balance rate is DOUBLE the straight line rate

Question 20

calculate the rate (declining balance)

Answer 20

100/ useful life in years

Question 21

annual expense (declining balance)

Answer 21

beginning book value x rate

Question 22

units of activity method

Answer 22

companies estimate total units of activity to calculate depreciation cost per unit

expense varies based on units of activity

Question 23

depreciable cost (units of activity)

Answer 23

cost- salvage value

Question 24

depreciable cost per unit (units of activity)

Answer 24

depreciable cost/total units of activity

Question 25

depreciation expense

Answer 25

depreciable cost per unit x units of activity

Question 26

IRS ______ require tax payer to use the same depreciation method on the tax return that is used in preparing financial statements

Answer 26

does not

Question 27

revising periodic depreciation

Answer 27

accounted for in the period of change and future periods not handled retrospectively not considered error

Question 28

calculate the net book value when revising periodic depreciation

Answer 28

cost - original salvage value/ original useful life

Question 29

calculate the remaining useful life when revising periodic depreciation

Answer 29

net book value - new salvage value

Question 30

the ______ writes the asset down to its new _____ _______ during the year in which the _____ ___ ______ occurs

Answer 30

company; fair value; decline in value

Question 31

disposal of plant assets

Answer 31

``` record depreciation up to date of disposal eliminate asset ( dr accumulated depreciation cr asset account) ```

Question 32

gain

Answer 32

if proceeds exceed book value

Question 33

loss

Answer 33

proceeds are less than book value

Question 34

journal entry for a gain on disposal (sale)

Answer 34

dr cash (proceeds from sale) dr accumulated depreciation (acc dep so far) cr equipment (original cost) cr gain on sale

Question 35

journal entry for loss on disposal

Answer 35

dr cash (proceeds from sale) dr accumulated depreciation dr loss on disposal cr equipment (original cost)

Question 36

retirement

Answer 36

NO CASH RECEIVED dr accumulated depreciation (full amount of dep taken over life of asset) cr asset acct (original cost of asset)

Question 37

limited life intangible assets

Answer 37

``` limited life (amortize to expense) cr asset acct ```

Question 38

indefinite life intangible assets

Answer 38

no forseeable limit on time the asset is expected to provide cash flows NO amortization

Question 39

patents

Answer 39

20 year life capitalize costs of purchasing expense any r/d costs legal fees incurred successfull defending a patent are capitalized to patent acct

Question 40

copyrights

Answer 40

life of creator + 70 years capitalize costs of acquiring and defending it amortized to expense over useful life

Question 41

trademarks

Answer 41

indefinite number of 20 year renewal periods capitalize acquisition costs no amortization

Question 42

franchises

Answer 42

may have limited life (amortize) or indefinite life (no amortize)

Question 43

goodwill

Answer 43

only recorded when an entire business is purchased recorded as excess of purchase price over the FMV of the identifiable net assets acquired internally created goodwill should not be capitalized

Question 44

return on assets

Answer 44

net income/average total assets OR | profit margin x asset turnover

Question 45

average total assets

Answer 45

beginning assets +ending assets/2