Long-term Assets: Notes receivable, PPE & Intangibles Flashcards
Who is a Payee?
Payee: Person to whom money is paid or is to be paid
—> Payee has a Note Receivable
Who is a Maker?
Maker: The person who promises to pay
—> Maker has a Note-payable
Whats an interest?
Cost of borrowing money —> stated as annual rate
Whats the Maturity Value?
The sum of principal and interest on the note
Whats the Maturity Date?
Date on which note must be repaid
Whats the term?
Length of time from when the note was signed by the maker to when note must be repaid by the maker
What does capitalizing (attributable) refer to?
- increase in the operating efficiency, productive capacity of useful life
- recorded on balance sheet
Whats does expensing (non-attributable) refer to?
- expense costs recorded on income statement or statement of cash flows
- Costs for ordinary repairs, additions or improvements
- usually smaller amounts that occur frequently
- operating cash outflow
Whats an example for a journal entry of a capitalized good?
Purchasing PPE
- Debiting PPE as an Asset
- Crediting Cash as an Asset
Whats an example for a journal entry of an expensed good?
Performing an oil switch
- Debiting an Expense as an SE (oil switch)
- Crediting Cash as an Asset
Name the different methods of depreciating a good
- Straight line
- Units of activity
- Double declining balance
Whats the concept of the straight line method (constant) and whats the formula of it?
This method is based on a useful life set by company:
Depreciation Expense =
(Cost - Residual) : Useful life
Whats the concept of the units of activity method (actual usage) and whats the formula of it?
This method is based on the target number of units makeable
Depreciation Expense=
Depreciation per unit x Units produced
—> (Cost - Residual) : Number of units
Whats the concept of the double declining balance method (accelerated) and whats the formula of it?
Based on useful life but accounts for double depreciation
Depreciation rate = 2 : useful life
Depreciation expense
= Book value x Depreciation rate
What are intangibles? Name some examples
-Goods of no physical substance
—> patents, copyrights, franchises, licenses, trade names
-Most valuable asset for high tech companies
-Accounted for by using the cost model
