Exam 2 - Chapters 9 & 12 Flashcards
List:
Types of Long-Term Assets
- Plant Assets (PPE) - Tangible Assets
2. Intangible Assets
Define:
Tangible Assets
aka Plant Assets
Long Term Assets
Property, Plant and Equipment (PPE) on the financial statement
Benefit from them for more than 1 year/1 operating cycle
Answer:
Which financial statement do tangible assets (plant assets) appear on?
balance sheet
List:
Examples of Tangible Assets (PPE)
- land
- Buildings
- Equipment
- Furniture
- Automobiles
Answer:
What is the general rule regarding acquisition cost of tangible assets?
All the costs associated with acquiring this asset and that prepare this asset for its intended use should be captured as the acquisition cost
Costs include purchase price, sales tax, transportation costs, employee training fees, modification cost, insurance sots - all added together and capitalized as the cost of the asset
List:
Examples of costs included in the acquisition cost of a tangible asset
- Purchase price
- Sales tax
- Transportation cost
- Employee training fees
- Modification costs
- Insurance costs
Answer:
Costs associated with the acquisition of tangible assets should be ___(a)___ and ___(b)___
a. added together
b. capitalized as the cost of those assets
Answer:
During the usage of the plant asset/tangible asset, we need to account for ___(a)___.
a. Depreciation
Define:
Depreciation
The systematic accounting way to recognize devaluation of the asset because of the technical usage, not because of the market devaluation
Depreciation is the systematic accounting way to recognize devaluation of the asset because of the ___(a)___, and not because of the ___(b)___
a. technical usage
b. market devaluation
Answer:
In term of calculating the depreciation of an asset, the first thing we need to know is ___(a)___
a. the useful life of the asset
Define:
Useful Life of an Asset
Estimate of the period of time over which the asset is expected to generate cash inflows
Define:
Salvage Value
aka residual value
Expected disposal value of an asset at the end of its useful life
Ex - A vehicle is past its 10 year useful life, but it can still be sold for $1,000
Answer:
Salvage value is also known as ___(a)___
a. residual value
Answer:
When calculating depreciation, after you determine the useful life, you must choose a/an ___(a)___
a. deprecation method
List:
Types of Depreciation Methods
- Activity Method/Units-of-Production Method
- Straight Line Method
- Double Declining Method
Define:
Straight Line Depreciation Method
Every period you depreciate exactly the same depreciation expense
Define:
Double-Declining Depreciation Method
You always have the largest depreciation expense in the first year and then after that the depreciation expense depreciates over time
Define:
Units-of-Production/Activity Method of Depreciation
Used when you cannot see a clear pattern of depreciation
The more you use the asset, the higher the depreciation expense
Example:
Unit-of-Production/Activity Method of Depreciation: You depreciate a vehicle based on miles driven
Subtract salvage value from acquisition value ($10,000-$2,000=$8,000)
For every mile driven we get a unit of depreciation expense on the balance sheet
Equation:
Depreciable Asset
Acquisition Cost
-
Salvage value
Answer:
With straight line depreciation method, every year you depreciate ___(a)___ and with double-declining method, each year you depreciate ___(b)___
a. a set value or percentage
b. 2 over n as a percentage where n means useful life (you double the percent you decline by as opposed to what you would use for straight line)
Answer:
___(a)___ is the most popular depreciation method because ___(b)___
a. Straight Line
b. it is easy
Answer:
If we use the straight line depreciation method every year the depreciation expenses will be ___(a)___, which is critical to a company because it ___(b)___, which makes it ___(c)___
a. relatively stable
b. build stability in the net income
c. easier to predict future earnings/cash flows
Answer:
Sometimes during the life of a plant asset, managers will do ___(a)___ and sometimes they will have ___(b)___
a. regular maintenance
b. some significant improvements to make
Answer:
If you are just doing regular maintenance, the purpose is to ___(a)___, and we call it ___(b)___
a. keep the original productivity of the plant asset
b. maintenance expenditure
Answer:
On the income statement, regular maintenance (___(a)___) is recorded as a/an ___(b)___, which is going to impact ___(c)___
a. maintenance expenditure
b. operating expense
c. this year’s net income
Answer:
The purpose of significant improvement is to ___(a)___, ___(b)___, and ___(c)___
a. significantly improve the productivity
b. improve the quality
c. Improve the efficiency
Define:
Capitalizing Expenditures
Record expenditures as an asset, as a separate type of asset on the balance sheet
Answer:
Maintenance is treated as a/an ___(a)___ on the ___(b)___, while significant improvement or betterment is treated as a/an ___(c)___ on the ___(d)___
a. operating expense
b. balance sheet
c. asset
d. income statement
Equation:
PPE Turnover Ratio
Sales / Average PPE Assets
Answer:
What the the PPE turnover ratio used for?
To analyze productivity of property, plant and equipment assets
Equation:
Average PPE Assets
(Beginning Assets + Ending Assets) / 2
Answer:
The PPE Turnover Ratio is measuring for ___(a)___ and how much ___(b)___. So the ___(c)___ the ratio means the ___(d)___ the productivity for every ___(e)___
a. every $1 of asset
b. sales revenue can be generated out of it
c. higher
d. higher
e. $1 of asset
Answer:
The PPR Turnover Ratio is a measure analyzing the ___(a)___
a. productivity of long-term assets
Answer:
Intangible assets are also called ___(s)___ and there are ___(b)___ characteristicts
a. long-term
b. 2 distinct
List:
Characteristics of Intangible Assets
a. Lack of physical evidence
b. High uncertainty in terms of the future benefit that can be generated from it
Define:
Lack of physical evidence of intangible assets
We cannot touch it and we cannot see it
Answer:
With intangible assets, depreciation is called ___(a)___
a. amortization
List:
Types of Amortization for Intangible Assets
- Straight line
b. Indefinite life
Answer:
The most common type of indefinite life amortization is ___(a)___
a. goodwill
Define:
Goodwill
Premium paid (overpaid) to acquire a potential asset
Example:
Goodwill - Company Purchase
You purchase a company with a lot of potential for $1,000,000, but the assets of the company are only worth $200,000, so the goodwill paid is $800,000
Answer:
Although goodwill is a/an ___(a)___, it must be recognized through a/an ___(b)___
a. intangible asset
b. tangible transaction
List:
Types of Tangible Transactions to Recognize Goodwill
a. mergers
b. takeovers
c. acquisitions
Answer:
After goodwill, instead of doing ___(a)___, you do a/an ___(b)___ every year
a. amortization
b. impairment test
Answer:
The purpose of a goodwill impairment test is to ___(a)___
a. determine if the book value of the goodwill is higher or lower than market value of the goodwill
Answer:
If the goodwill impairment test shows the goodwill is lower than market value, you ___(a)___, however if it shows the market value is higher than the goodwill you ___(b)___
a. write it down to the market value
b. keep the original goodwill on the books
Answer:
When goodwill impairment test shows the value of the goodwill is below market value, you ___(a)___ the goodwill to ___(b)___ and ___(c)___ on the ___(d)____
a. mark down
b. the market value
c. record the losses
d. income statement
