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Accounting for Managers > Exam 2 - Chapters 9 & 12 > Flashcards

Exam 2 - Chapters 9 & 12 Flashcards

1
Q

List:

Types of Long-Term Assets

A
  1. Plant Assets (PPE) - Tangible Assets

2. Intangible Assets

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2
Q

Define:

Tangible Assets

A

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

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3
Q

Answer:

Which financial statement do tangible assets (plant assets) appear on?

A

balance sheet

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4
Q

List:

Examples of Tangible Assets (PPE)

A
  1. land
  2. Buildings
  3. Equipment
  4. Furniture
  5. Automobiles
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5
Q

Answer:

What is the general rule regarding acquisition cost of tangible assets?

A

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

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6
Q

List:

Examples of costs included in the acquisition cost of a tangible asset

A
  1. Purchase price
  2. Sales tax
  3. Transportation cost
  4. Employee training fees
  5. Modification costs
  6. Insurance costs
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7
Q

Answer:

Costs associated with the acquisition of tangible assets should be ___(a)___ and ___(b)___

A

a. added together

b. capitalized as the cost of those assets

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8
Q

Answer:

During the usage of the plant asset/tangible asset, we need to account for ___(a)___.

A

a. Depreciation

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9
Q

Define:

Depreciation

A

The systematic accounting way to recognize devaluation of the asset because of the technical usage, not because of the market devaluation

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10
Q

Depreciation is the systematic accounting way to recognize devaluation of the asset because of the ___(a)___, and not because of the ___(b)___

A

a. technical usage

b. market devaluation

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11
Q

Answer:

In term of calculating the depreciation of an asset, the first thing we need to know is ___(a)___

A

a. the useful life of the asset

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12
Q

Define:

Useful Life of an Asset

A

Estimate of the period of time over which the asset is expected to generate cash inflows

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13
Q

Define:

Salvage Value

A

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

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14
Q

Answer:

Salvage value is also known as ___(a)___

A

a. residual value

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15
Q

Answer:

When calculating depreciation, after you determine the useful life, you must choose a/an ___(a)___

A

a. deprecation method

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16
Q

List:

Types of Depreciation Methods

A
  1. Activity Method/Units-of-Production Method
  2. Straight Line Method
  3. Double Declining Method
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17
Q

Define:

Straight Line Depreciation Method

A

Every period you depreciate exactly the same depreciation expense

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18
Q

Define:

Double-Declining Depreciation Method

A

You always have the largest depreciation expense in the first year and then after that the depreciation expense depreciates over time

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19
Q

Define:

Units-of-Production/Activity Method of Depreciation

A

Used when you cannot see a clear pattern of depreciation

The more you use the asset, the higher the depreciation expense

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20
Q

Example:

Unit-of-Production/Activity Method of Depreciation: You depreciate a vehicle based on miles driven

A

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

21
Q

Equation:

Depreciable Asset

A

Acquisition Cost

-

Salvage value

22
Q

Answer:

With straight line depreciation method, every year you depreciate ___(a)___ and with double-declining method, each year you depreciate ___(b)___

A

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)

23
Q

Answer:

___(a)___ is the most popular depreciation method because ___(b)___

A

a. Straight Line

b. it is easy

24
Q

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

a. relatively stable
b. build stability in the net income
c. easier to predict future earnings/cash flows

25
Q

Answer:

Sometimes during the life of a plant asset, managers will do ___(a)___ and sometimes they will have ___(b)___

A

a. regular maintenance

b. some significant improvements to make

26
Q

Answer:

If you are just doing regular maintenance, the purpose is to ___(a)___, and we call it ___(b)___

A

a. keep the original productivity of the plant asset

b. maintenance expenditure

27
Q

Answer:

On the income statement, regular maintenance (___(a)___) is recorded as a/an ___(b)___, which is going to impact ___(c)___

A

a. maintenance expenditure
b. operating expense
c. this year’s net income

28
Q

Answer:

The purpose of significant improvement is to ___(a)___, ___(b)___, and ___(c)___

A

a. significantly improve the productivity
b. improve the quality
c. Improve the efficiency

29
Q

Define:

Capitalizing Expenditures

A

Record expenditures as an asset, as a separate type of asset on the balance sheet

30
Q

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

a. operating expense
b. balance sheet
c. asset
d. income statement

31
Q

Equation:

PPE Turnover Ratio

A

Sales / Average PPE Assets

32
Q

Answer:

What the the PPE turnover ratio used for?

A

To analyze productivity of property, plant and equipment assets

33
Q

Equation:

Average PPE Assets

A

(Beginning Assets + Ending Assets) / 2

34
Q

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

a. every $1 of asset
b. sales revenue can be generated out of it
c. higher
d. higher
e. $1 of asset

35
Q

Answer:

The PPR Turnover Ratio is a measure analyzing the ___(a)___

A

a. productivity of long-term assets

36
Q

Answer:

Intangible assets are also called ___(s)___ and there are ___(b)___ characteristicts

A

a. long-term

b. 2 distinct

37
Q

List:

Characteristics of Intangible Assets

A

a. Lack of physical evidence

b. High uncertainty in terms of the future benefit that can be generated from it

38
Q

Define:

Lack of physical evidence of intangible assets

A

We cannot touch it and we cannot see it

39
Q

Answer:

With intangible assets, depreciation is called ___(a)___

A

a. amortization

40
Q

List:

Types of Amortization for Intangible Assets

A
  1. Straight line

b. Indefinite life

41
Q

Answer:

The most common type of indefinite life amortization is ___(a)___

A

a. goodwill

42
Q

Define:

Goodwill

A

Premium paid (overpaid) to acquire a potential asset

43
Q

Example:

Goodwill - Company Purchase

A

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

44
Q

Answer:

Although goodwill is a/an ___(a)___, it must be recognized through a/an ___(b)___

A

a. intangible asset

b. tangible transaction

45
Q

List:

Types of Tangible Transactions to Recognize Goodwill

A

a. mergers
b. takeovers
c. acquisitions

46
Q

Answer:

After goodwill, instead of doing ___(a)___, you do a/an ___(b)___ every year

A

a. amortization

b. impairment test

47
Q

Answer:

The purpose of a goodwill impairment test is to ___(a)___

A

a. determine if the book value of the goodwill is higher or lower than market value of the goodwill

48
Q

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

a. write it down to the market value

b. keep the original goodwill on the books

49
Q

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

a. mark down
b. the market value
c. record the losses
d. income statement

Accounting for Managers (15 decks)

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