Final Exam Flashcards
Cost basis for recording valuation of property, plant and equipment
Record property at FV
Interests cost during construction qualifications
Does not qualify if asset is already in use or company does not use its earnings activities and that are not undergoing activities necessary
Interest cost during construction
Capitalization period property plant and equipment
Begins = expenditures for asset have been made
Ends = asset is complete and ready for use
Interest cost during construction
Amount to capitalize
Use lower of actual interest incurred during the period or avoidable interest
Exchanges of non monetary assets
Commercial substance
Future cash as a result of the transaction
Exchanges of nonmonetary assets
Lacking commercial substance journal entries for purchase and cash payment
Purchase
Equipment - D
Accumulated Depr - D
Equipment - C
Cash - C
Cash payment
Cash - D
Equipment - D
Accumulated depreciation - D
Old equipment - C
Gain on disposal of machine - C
Factors involved in the depreciation process
What is the depreciable base?
What is the assets useful life?
What method of cost allocation is best for this asset?
Deprecations method; activity def and eq
Assumes the depreciation is a function of use or productivity
(Cost - salvage value)/ total estimated activity
Depreciation method; straight line def and eq
Considers depreciation is a function of time rather than usage
(Cost - salvage value) / total estimated activity
Depreciation method: sum of year def
Results in a decrease in depreciation exp based on decreasing fraction of the depreciable base
Depreciation method: double declining balance
Same as the sum of year but double the straight line rate
Revision of depreciation rates
Compute excess of depreciation charged and journal the difference by debiting depreciation exp and crediting accumulated depreciation
Asset turnover
Net sales/ avg total assets
Profit margin on sales
NI / net sales
return on assets
NI / avg total assets
