Chapters 8

Question 1

acquisition cost

Answer 1

the amount that includes all of the cost normally necessary to acquire an asset and prepare it for its intended use

Question 2

capitalization of interest

Answer 2

interest on constructed assets is added to the asset account

Question 3

land improvements

Answer 3

costs that are related to land but have a limited life

Question 4

depreciation

Answer 4

the allocation of the original cost of an asset to the periods benefited by its use

Question 5

straight line depreciation

Answer 5

a method by which the same dollar amount of depreciation is recorded in each year of asset use

Question 6

book value

Answer 6

the original cost of an asset minus the amount of accumulated depreciation

Question 7

units of production depreciation

Answer 7

depreciation is determined as a function of the number of units the asset produces

Question 8

how to calculate depreciation per unit

Answer 8

( (acquisition cost) - (salvage value) ) / (total # of units in asset’s life)

Question 9

how to calculate annual depreciation for the units-of-production method

Answer 9

(depreciation per unit) x (units produced in current year)

Question 10

accelerated depreciation

Answer 10

a higher amount of depreciation is recorded in the early years and a lower amount in the later years

Question 11

double declining balance method for depreciation

Answer 11

depreciations recorded at twice the straight line rate, but the balance is reduced each period

Question 12

change in estimate

Answer 12

a change in the life of the asset or in its salvage value

Question 13

capital expenditure

Answer 13

a cost that improves the asset and is added to the asset account

Question 14

revenue expenditure

Answer 14

a cost that keeps an asset in its normal operating condition and is treated as an expense

Question 15

gain on sale of asset

Answer 15

the excess of the selling price over the asset’s book value

Question 16

loss on sale of asset

Answer 16

the amount by which the selling rice is less than book value

Question 17

intangible assets

Answer 17

assets with no physical properties

Question 18

goodwill

Answer 18

the excess of the purchase price to acquire a business over the value of the individual net assets acquired

Question 19

research and development costs

Answer 19

costs incurred in the discovery of new knowledge

Question 20

current liability

Answer 20

accounts that will be satisfied within one year or the current operating cycle

Question 21

accounts payable

Answer 21

amounts owed for inventory, goods, or services acquired in the normal course of business

Question 22

note payable

Answer 22

amounts owed that are represented by a formal contract

Question 23

discount on notes payable

Answer 23

a contra-liability that represents interest deducted from a loan in advance

Question 24

current maturities of long term debt

Answer 24

the portion of a long-term liability that will be paid within one year

Question 25

accrued liability

Answer 25

a liability that has been incited but has not yet been payed