Final - intermediate ACCT 3331 Flashcards
T/F
plant assets, operating assets, and fixed assets are commonly used terms for PP&E.
True
T/F
PP&E are nondurable in nature.
False
Capitalizing means recognizing as an _____ on the _____.
Asset; B/S
Expensing means recognizing as an _____ on the _____.
expense; I/S
PP&E should be captialized at _____?
Historical cost
Costs that are capitalized for land are:
purchase price
closing costs, (title, attorney’s fees, recording fees)
cost of grading, filling, draining, and clearing
assumption of any liens, mortgages, encumbrances on property
additioanl land imporvements with an indefinte life
land improvements are depreciated as long as they have a/an _____ life.
definite life
Examples of land improvements:
Private driveways
walks
fences
parking lots
land acquired and held for speculation is classified as a/an
investment
land held by real estate concern for resale should be classified as
inventory
costs that are capitalized for buidling are:
materials, labor, and overhead costs incurred during construction
professional fees and building permits
Costs that are capitalized for Equipment are:
purchase price freight and handling charges insurance on the equipment while in transit cost of special foundations assembling and installation cost on conducting trial runs
Where is it shown on a B/S?
a lien that was attached to the land when purchased
land
Where is it shown on a B/S?
landscaping cost
land
Where is it shown on a B/S?
attorney’s fees and recording fees related to purchasing land
land
Where is it shown on a B/S?
variable overhead related to construction of machinery
equipment
Where is it shown on a B/S?
a parking lot servicing employees in the building
land improvements
Where is it shown on a B/S?
cost of temporary building for workers during construction of a building
building
Where is it shown on a B/S?
interest expense on bonds payable incurred during construction of a building
building
Where is it shown on a B/S?
the cost of demolishing an old building that was on the land when purchased
land
T/F
capitalize all cost directly associated with the construction of the asset, which include only material and overhead
False because labor is included
insterest that could have been avoided if the asset were not constructed and the money used to retire debt
avoidable interest
3 items to consider in capitalization of interest cost
qualifying assets
capitalization perid
amount to capitalize
steps in capitalizing process
compute actual interest expense
compute avoidable interest
capitalize the smaller of acutual or avoidable interest
comapnies should recored PP&E…
at the fair value of what they give up or
at the fair value of the asset received
assets, purchased though long term credit, are recored at the present value of the consideration exchange
deffered payment contracts
allocate the total cost among the various assets on the basis of their fair market values
lump sum purchases
the market value of the stock issued is a fair indication of the cost of the property acquired
issuance of stock
companies should recognize immediately any gains or losses on the exchange when the transaction has
commercial substance
when does an exchange have commercial substance?
if the expected futrue cash flows change as a result of the exchange
typically has commerical substance because the assets have different uses and therefore different cash flows
dissimilar assets
ex. machinery exchange for land
typically has no commerical substance
similar assets unless they are significantly different
Capitalize or Expense?
Improvements
capitalize
Capitalize or Expense?
repairs
expense
Capitalize or Expense?
rearrangements
expense
Capitalize or Expense?
additions
capitalize
T/F
furture economic benefit includes increase in useful life, quantity of product produced, and quality of product produced
True
depreciation must be taken up to the date of
sale
future economic benefits would include increases in:
useful life
quantity of product
quality of product
fixed assets (tangible)=
depreciation expense
intangibles (patent, copywrites, trademark, goodwill) =
amortization expense
natural resources (oil, mines) =
depletion expense
what is not subject to depreciation?
land
depreciable base =
historical cost - salvage value
what are the 4 methods of depreciation?
activity (units of use or production)
straight line
sum of the years digits
declinging balance
which 2 depreciation mehtods are considered accelerated methods
sum of the years digits
declining balance
match higher depreciation expense with higher revenues in the early years of an asset’s useful life when the asset is more efficient
accelerated depreciation methods
units of production (activity) =
(cost - residual value) / estimated units
dep. exp = dep. rate x units produced
when the carrying amount of an asset is not recoverable, a company records a write off reffered to as an
impairment
what are the events that lead to an impairment?
1: decrease in the FV of an asset
2: change in the manner in which an asset is used
3: adversed change in legal factors or in the business climate
4: accumulation of costs in excess of the amount originally expected to acquire or construct an asset
5: a projection or forecast that demonstrates continuing losses associated with an asset
steps in measuring impairment
review events for possible impairment
recoverability test (BV - undiscounted FV C/F)
fair value test (BV - FV)
What are the potential accounting manipulations?
capitalization of PP&E
depreciation of PP&E
impairment of PP&E
T/F
interest cost in connection with the purchase of land should be capitalized to the land account
False
T/F
Under US GAAP, all research and development costs are expensed as soon as they are incurred
False
T/F
internally generated goodwill should not be capitalized in the accounts
True
T/F
land is always classified as PP&E on a company’s balance sheet
False
T/F
When a company exchanges nonmonetary assets and a loss results, the company recognizes the loss only if the exchange has commerical substance
False
when computing the amount of interest cost to be capitalized, the concept of avoidable interest refers to
the portion of total interest cost which would have been incurred if expenditures for asset construction had not been made
T/F
the three factors involved in the depreciation process are the depreciation base, the useful life, and the risk of obsolescence
False
If a firm increases its estimate of salvage value for a machine (with other things unchanged), the annual depreciation will _____ under the straight line method
decrease
when a firm records an impairment loss for a manchine, its net income _____, and its total assets _____.
decrease; decrease
Seasons’ Fun Corp. spent $20000 to add a spa room in its hotel in downtown. the $20000 should be expensed or capitalized?
capitalized
name some examples of intangle assets
patent (20 years)
trademark (10 years)
copywrite (70+ years
goodwill
intangible assets can be either _____ or _____.
purchased; internally created
purchased are capitalized and internally created are not
T/F
internally created intangible assets are generally recorded on the balance sheet
False
they are created
T/F
Both limited life and indefinte life intangibles are amortized (typically using SL method)
False
only limited life
T/F
goodwill can be externally acquired or internally generated
True
Goodwill should not be amortized, but we do adjust the carrying value of goodwill when it is _____.
impaired
what are the steps in the measurement of goodwill impairement
- compare FV of each reporting unit to BV of the reporting unit (BV>FV then impairment exits)
- Implied FV of goodwill (FV-FV of all net assets other than goodwill)
BV of goodwill - Implied FV of good will
