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ACCT 229 > chapter eight notes > Flashcards

chapter eight notes Flashcards

1
Q

tangible assets

A

plant, property, and equipment

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2
Q

what is the cost allocation concept for tangible assets?

A

depreciation

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3
Q

intangible assets

A

patents, copyrights, trademarks, software and web technologies, franchises, goodwill

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4
Q

what is the cost allocation concept for intangible assets?

A

amortization

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5
Q

non-depreciable assets

A

LAND

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6
Q

depreciable assets

A

plans and equipment with limited useful lives

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7
Q

how do you determine the original cost of an asset?

A

include ALL costs incurred to bring the asset into its protective capacity

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8
Q

land

A

purchase price + commission + taxes due + any land preparation costs - proceeds from salvage

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9
Q

land improvements

A

improvements the company must maintain with limited useful lives

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10
Q

what are examples of land improvements?

A

driveway, parking lot, landscaping

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11
Q

do you depreciate land?

A

NO

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12
Q

do you depreciate land improvements?

A

yes

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13
Q

buildings

A

purchase price + renovation costs + legal and reality fees + title fees

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14
Q

constructing buildings

A

construction costs (material, labor, and overhead) + interest on debt incurred during construction

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15
Q

equipment

A

invoice price - purchase price + transportation in + installation costs + trial runs + sales tax

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16
Q

are repairs included in original cost?

A

no

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17
Q

are discounts included in original cost?

A

yes

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18
Q

are required costs included in original cost?

A

yes

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19
Q

are freight costs included in original cost?

A

yes

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20
Q

is prepaid insurance included in original cost?

A

no

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21
Q

what is the purpose of depreciation?

A

cost allocation

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22
Q

define depreciation

A

the process of charging the original cost of a tangible asset to expense over its useful

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23
Q

what concept does depreciation follow?

A

matching concept

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24
Q

depreciation expense

A

operating expense on Income statement only represents the amount “used up” in the current year

25
Q

accumulated depreciation

A

contra-asset on balance sheet->reduces the assets to net book value (sum of all depreciation) can be used to determine the asset’s age

26
Q

book value

A

reported on the balance sheet

cost-AD=book value

27
Q

salvage value/residual value

A

amount expected to be recovered at the end of the asset’s life or when it is sold

28
Q

depreciable base

A

the maximum amount of depreciation that can record over the asset’s life
cost - salvage value= max AD

29
Q

straight line

A

allocates cost of asset to expense evenly over its useful life

30
Q

depreciable base equation

A

(cost - salvage value)/# useful years=depreciation expense

31
Q

accelerated method (double declining balance)

A

record larger amounts of depreciation in early years of asset life

32
Q

depreciation expense equation for accelerated method

A

(cost-accumulated depreciation)/(2/# of useful years)

33
Q

units of production method

A

the asset’s useful is based on the number of units it will produce over its entire life, not number of years

34
Q

depreciation rate equation

A

(cost-salvage value)/# of units

35
Q

depreciation expense for units of production equation

A

(units used)(depreciation rate)

36
Q

are there partial year compensations for units of production method?

A

NO

37
Q

capital expenditure

A

those that are expected to benefit future periods

BIG DOLLAR

38
Q

is a capital expenditure if…

A 
increasing productivity (quantity of output)
extending useful life
39
Q

accounting treatment of a capital expenditure

A

add cost to asset

40
Q

what is the entry for recording a capital expenditure?

A

asset x

cash x

41
Q

revenue expenditure

A

normal recurring expenditures designed to maintain the asset

42
Q

accounting treatment of a revenue expenditure

A

expense when incurred (immediately)

43
Q

what is the entry for recording a revenue expenditure?

A

repair expense x

cash x

44
Q

what are the steps of disposing of an asset?

A
  1. update depreciation expense/accumulated depreciation
  2. calculate gain/loss
  3. record journal entry
45
Q

proceeds< (cost-AD)/BV

A

loss

46
Q

proceeds> (cost-AD)/BV

A

gain

47
Q

intangible assets

A
  1. lack physical substance->legal document
  2. provide future benefit
  3. may have definite or indefinite life
48
Q

only amortize intangibles with ______ lives

A

definite

49
Q

what is the typical legal life of a patent?

A

20 years

50
Q

what is the typical legal life of a copyright?

A

50 years + life of creator

not to exceed 70 years

51
Q

what is the typical legal life of a trademark?

A

can be rented indefinitely

DO NOT AMORTIZE

52
Q

what is the typical life of goodwill?

A
  1. a company buys another company
  2. and pays MORE than FMV of the net assets
    DO NOT AMORTIZE-Indefinite life
    review annually
53
Q

amortization of intangible assets

A

allocates the original cost to expense over the assets life

54
Q

for intangible with a definite life amortize over the lesser of:

A

useful life
legal life
maximum of 20 years

55
Q

what type of amortization do you use for intangible assets?

A

straight-line (no salvage)

56
Q

amortization of intangible reduces the asset account _____

A

directly

57
Q

under IFRS, development costs may be capitalized as an asset after…

A

“technical and commercial feasibility” have been established

58
Q

how are research and development costs recorded under GAAP?

A

expenses as incurred

ACCT 229 (11 decks)

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