Chapter 9 GLOSSARY REVIEW

Question 1

What is the accelerated-depreciation method?

Answer 1

A depreciation method that produces higher depreciation expense in the early years than the straight-line approach.

Question 2

What are additions and improvements?

Answer 2

Costs incurred to increase the operating efficiency, productive capacity, or ex- pected useful life of a plant asset.

Question 3

What is amortization?

Answer 3

The process of allocating to expense the cost of an intangible asset.

Question 4

What is a asset turnover?

Answer 4

Indicates how efficiently a company uses its assets to generate sales; calculated as net sales divided by average total assets.

Question 5

What are capital expenditures?

Answer 5

Expenditures that increase the company’s investment in plant assets.

Question 6

What is capital lease?

Answer 6

A contractual agreement allowing one party (the lessee) to use another party’s asset (the lessor); accounted for like a debt-financed purchase by the lessee.

Question 7

What is the cash equivalent price?

Answer 7

An amount equal to the fair value of the asset given up or the fair value of the asset received, whichever is more clearly determinable.

Question 8

What is a copyright?

Answer 8

An exclusive right granted by the federal government allowing the owner to reproduce and sell an artistic or published work.

Question 9

What is the declining-balance method?

Answer 9

A depreciation method that applies a constant rate to the declining book value of the asset and produces a decreasing annual depreciation expense over the asset’s useful life.

Question 10

What is depreciable cost?

Answer 10

The cost of a plant asset less its salvage value.

Question 11

What is depreciation?

Answer 11

The process of allocating to expense the cost of a plant asset over its useful life in a rational and systematic manner.

Question 12

What is a franchise?

Answer 12

A contractual arrangement under which the franchisor grants the franchisee the right to sell certain products, to perform specific services, or to use certain trademarks or trade names, usually within a designated geographic area.

Question 13

What is goodwill?

Answer 13

The value of all favorable attributes that relate to a company that are not attributable to any other specific asset

Question 14

What is impairment?

Answer 14

A permanent decline in the fair value of an asset.

Question 15

What is the units-of-activity meethod?

Answer 15

A depreciation method in which useful life is expressed in terms of the total units of production or use expected from the asset.

Question 16

What is a trademark or (trade name)?

Answer 16

A word, phrase, jingle, or symbol that distinguishes or identifies a particular enterprise or product.

Question 17

What is the straight-line method?

Answer 17

A depreciation method in which companies expense an equal amount of depreciation for each year of the asset’s useful life.

Question 18

What are revenue expenditures?

Answer 18

Expenditures that are immediately charged against revenues as an expense.

Question 19

What are return on assets?

Answer 19

A profitability measure that indicates the amount of net income generated by each dollar of assets; computed as net income divided by average total assets.

Question 20

What are research and development costs?

Answer 20

Expenditures that may lead to patents, copyrights, new processes, and new products; must be expensed as incurred.

Question 21

What are plant assets?

Answer 21

Resources that have physical substance, are used in the operations of a business, and are not intended for sale to customers.

Question 22

What is a patent?

Answer 22

An exclusive right issued by the U.S. Patent Office that enables the recipient to manufacture, sell, or otherwise control an invention for a period of 20 years from the date of the grant.

Question 23

What are ordinary repairs?

Answer 23

Expenditures to maintain the operat- ing efficiency and expected productive life of the asset.

Question 24

What is a operating lease?

Answer 24

A contractual agreement allowing one party (the lessee) to use the asset of another party (the lessor); accounted for as a rental by the lessee.

Question 25

What is a lessee?

Answer 25

A party that has made contractual arrangements to use another party’s asset for a period at an agreed price.

Question 26

What is a lessor?

Answer 26

A party that has agreed contractually to let another party use its asset for a period at an agreed price.

Question 27

What are intangible assets?

Answer 27

Rights, privileges, and competitive advantages that result from the ownership of long-lived assets that do not possess physical substance.