chapter eight notes

Question 1

tangible assets

Answer 1

plant, property, and equipment

Question 2

what is the cost allocation concept for tangible assets?

Answer 2

depreciation

Question 3

intangible assets

Answer 3

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

Question 4

what is the cost allocation concept for intangible assets?

Answer 4

amortization

Question 5

non-depreciable assets

Answer 5

LAND

Question 6

depreciable assets

Answer 6

plans and equipment with limited useful lives

Question 7

how do you determine the original cost of an asset?

Answer 7

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

Question 8

land

Answer 8

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

Question 9

land improvements

Answer 9

improvements the company must maintain with limited useful lives

Question 10

what are examples of land improvements?

Answer 10

driveway, parking lot, landscaping

Question 11

do you depreciate land?

Answer 11

NO

Question 12

do you depreciate land improvements?

Answer 12

yes

Question 13

buildings

Answer 13

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

Question 14

constructing buildings

Answer 14

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

Question 15

equipment

Answer 15

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

Question 16

are repairs included in original cost?

Answer 16

no

Question 17

are discounts included in original cost?

Answer 17

yes

Question 18

are required costs included in original cost?

Answer 18

yes

Question 19

are freight costs included in original cost?

Answer 19

yes

Question 20

is prepaid insurance included in original cost?

Answer 20

no

Question 21

what is the purpose of depreciation?

Answer 21

cost allocation

Question 22

define depreciation

Answer 22

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

Question 23

what concept does depreciation follow?

Answer 23

matching concept

Question 24

depreciation expense

Answer 24

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

Question 25

accumulated depreciation

Answer 25

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

Question 26

book value

Answer 26

reported on the balance sheet | cost-AD=book value

Question 27

salvage value/residual value

Answer 27

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

Question 28

depreciable base

Answer 28

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

Question 29

straight line

Answer 29

allocates cost of asset to expense evenly over its useful life

Question 30

depreciable base equation

Answer 30

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

Question 31

accelerated method (double declining balance)

Answer 31

record larger amounts of depreciation in early years of asset life

Question 32

depreciation expense equation for accelerated method

Answer 32

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

Question 33

units of production method

Answer 33

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

Question 34

depreciation rate equation

Answer 34

(cost-salvage value)/# of units

Question 35

depreciation expense for units of production equation

Answer 35

(units used)(depreciation rate)

Question 36

are there partial year compensations for units of production method?

Answer 36

NO

Question 37

capital expenditure

Answer 37

those that are expected to benefit future periods | BIG DOLLAR

Question 38

is a capital expenditure if...

Answer 38

``` increasing productivity (quantity of output) extending useful life ```

Question 39

accounting treatment of a capital expenditure

Answer 39

add cost to asset

Question 40

what is the entry for recording a capital expenditure?

Answer 40

asset x | cash x

Question 41

revenue expenditure

Answer 41

normal recurring expenditures designed to maintain the asset

Question 42

accounting treatment of a revenue expenditure

Answer 42

expense when incurred (immediately)

Question 43

what is the entry for recording a revenue expenditure?

Answer 43

repair expense x | cash x

Question 44

what are the steps of disposing of an asset?

Answer 44

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

Question 45

proceeds< (cost-AD)/BV

Answer 45

loss

Question 46

proceeds> (cost-AD)/BV

Answer 46

gain

Question 47

intangible assets

Answer 47

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

Question 48

only amortize intangibles with ______ lives

Answer 48

definite

Question 49

what is the typical legal life of a patent?

Answer 49

20 years

Question 50

what is the typical legal life of a copyright?

Answer 50

50 years + life of creator | not to exceed 70 years

Question 51

what is the typical legal life of a trademark?

Answer 51

can be rented indefinitely | DO NOT AMORTIZE

Question 52

what is the typical life of goodwill?

Answer 52

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

Question 53

amortization of intangible assets

Answer 53

allocates the original cost to expense over the assets life

Question 54

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

Answer 54

useful life legal life maximum of 20 years

Question 55

what type of amortization do you use for intangible assets?

Answer 55

straight-line (no salvage)

Question 56

amortization of intangible reduces the asset account _____

Answer 56

directly

Question 57

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

Answer 57

"technical and commercial feasibility" have been established

Question 58

how are research and development costs recorded under GAAP?

Answer 58

expenses as incurred