Final Flashcards
Physical assets such as equipment, buildings, land, machinery, and vehicles are ___ assets
Tangible (Fixed) assets
No physical substance such as brand names, trademarks, and licensing rights are ___ assets
Intangible assets
Long lived assets: business assets acquired for…
use over 1+ years
General rule for tangible assets under the cost principle is that all reasonable and necessary costs to ___ and ___ an asset for use should be recorded as a cost of the asset
acquire; prepare
Costs have been ___ when they are recorded as assets, rather than expenses
capitalized
(increases/decreases)
Capitalizing costs ___ assets, and ___ expenses
increases; decreases
What costs should be capitalized when Land is acquired?
purchase cost, legal fees, survey fees, title search fees
What costs should be capitalized when Buildings are acquired?
purchase/construction cost, legal fees, appraisal fees, architect fees
What costs should be capitalized when Equipment is acquired?
purchase/construction cost, sales taxes, transportation costs, installation costs
Maintenance costs incurred during use of tangible assets
ordinary repairs, extraordinary repairs and maintenance
What is a basket purchase?
purchase of more than one asset at the same time for one purchase price
Cedar Fair paid $10 million for a hotel and the land surrounding it, based on an appraisal that estimates the land contributes 40% of the property’s value and the building contributes 60%.
How would Cedar Fair distribute these costs?
record 40% of the total cost as land ($4 million), and the other 60% as buildings ($6 million)
Why do you need to split the purchase price in a basket purchase?
splitting the purchase price among individual assets is necessary because they may be used over different periods
What is an example of an ordinary repair and maintenance?
oil changes for your car
What is an example of an extraordinary repair, replacement, and addition?
additions, major overhauls, complete reconditioning, and major replacements and improvements such as the replacement of the passenger train on a rollercoaster
Are extraordinary repairs capitalized?
yes. Since these costs increase the usefulness of tangible assets, they are added to the appropriate long-lived asset accounts, “capital expenditures”
(Expense/Capitalize)
Replacing electrical wiring throughout the building
Capitalize
(Expense/Capitalize)
Repairing the hinge on the front door of the building
Expense
(Expense/Capitalize)
Yearly cleaning of the building’s air-conditioning filters
Expense
(Expense/Capitalize)
Replacing load-bearing walls with a laminated beam
Capitalize
When does a company report depreciation expense?
a company reports depreciation expense every period buildings and equipment are used to generate revenue
Accumulated Depreciation is under the ___ of the Balance Sheet, ___ with the amount of Accumulated Depreciation, as it ___ the Property and Equipment Asset
Assets; decreasing; decreases
Asset cost includes the asset’s capitalized costs:
purchase cost, sales tax, legal fees, and other costs needed to acquire and prepare the asset for use
Useful life is an estimate of the asset’s useful economic life to the company. May be expressed in terms of ___ or ___ of capacity
years; units