section 8

Question 1

t/f a capitalized expenditure is accounted for as an expense rather than an asset

Answer 1

false, when an expenditure is “capitalized” it means that it is accounted for as an asset rather than an expense

Question 2

long term assets are also known as

Answer 2

non-current assets
capital assets
operating assets

Question 3

long term assets might include

Answer 3

intangible assets
property, plant & equipment
natural resources

Question 4

Depreciation Expense is applied to what type of long term assets?

Answer 4

property, plant and equipment

Question 5

amortization expense refers to what kind of long term asset?

Answer 5

intangibles

Question 6

depletion expense

Answer 6

natural resources

Question 7

Intangible assets

Answer 7

represent rights that have future benefit such as
trademark
patent
franchise rights
copyrights

Question 8

Under GAAP, R&D costs incurred in the development of what is hoped to be some future patentable product or tech are to be

Answer 8

expensed when incurred even if such costs may contribute to a patentable discovery

Question 9

Goodwill is recorded as an asset only when

Answer 9

a business is purchased

Question 10

Goodwill exists if the business is

Answer 10

actually worth more than the value of its assets less liabilities

Question 11

Straight line depreciation

Answer 11

cost—salvage value (divided by) # yrs of useful life

Question 12

Why is allocation of an operating asset’s cost over time necessary?

Answer 12

the matching principle a.k.a expense recognition principle

Question 13

capitalizing an expenditure means that

Answer 13

the expenditure, usually in the form of a payment of cash, is made in the purchase of an asset

Question 14

Long Term Assets aka

Answer 14

Non-Current Assets
Operating Assets
Capital Assets

Question 15

property, plant, and equipment includes

Answer 15

land, improvements, buildings, machinery, and equipment with an expected useful life LONGER than ONE YEAR

Question 16

intangible assets

Answer 16

includes patents, trademarks, copyrights, franchise rights and goodwill

Question 17

natural resources

Answer 17

includes oil wells, mineral deposits, timber tracts, etc

Question 18

basic accounting for operating assets (4)

Answer 18

1. recording the acquisition of the asset
2. allocating the cost of the asset to expense over its useful life
3. recording any repairs or improvements to the asset
4. recording the sale or disposal of the asset

Question 19

In recording the acquisition of an operating asset, GAAP requires

Answer 19

all direct or incidental costs incurred in acquiring an asset and preparing it for ORIGINAL INTENDED USE to be capitalized a part of the cost of the asset

Question 20

straight line depreciation

Answer 20

an equal amount of cost each year of its estimated useful life

Question 21

book value is

Answer 21

the original capitalized cost minus accumulated depreciation

Question 22

real accounts are

Answer 22

balance sheet accounts and never close

Question 23

why use a contra-asset account rather than reduce the asset directly?

Answer 23

to provide better disclosure

Question 24

GAAP requires any costs incurred in normal recurring repairs and maintenance of property, plant or equipment to be

Answer 24

expensed in the period incurred

Question 25

GAAP requires any costs incurred in improvements to property, plant or equipment to be capitalized as

Answer 25

an increase in the original cost of the asset

Question 26

Improvements are

Answer 26

1.costs that significantly increase the original productivity of an asset or
2. extend the useful life beyond what was originally estimated

Question 27

What kind of account is gain on sale?

Answer 27

revenue, which appears on the income statement under OTHER revenues & expenses

Question 28

What kind of account is loss on sale?

Answer 28

expense on income statement under other rev/exp

Question 29

What kind of account is loss on disposal?

Answer 29

expense, under other on income statement

Question 30

Trademarks are recorded as an asset only when

Answer 30

rights are purchased

Question 31

patents are recorded as an asset if

Answer 31

patent rights are purchased

Question 32

Under GAAP, R&D costs are to be

Answer 32

expensed when incurred even if such costs may contribute to a patentable discovery

Question 33

Any legal fees and court costs incurred in the successful defense of copyrights or trademarks should be

Answer 33

capitalized to the asset

Question 34

any capitalized costs of intangibles reflected on the balance sheet must be

Answer 34

allocated to expense over its life

Question 35

allocation of the cost of an intangible over its useful life is referred to as

Answer 35

amortization

Question 36

what kind of account is accumulated amortization?

Answer 36

contra asset account

Question 37

goodwill is recorded as an asset only when a business is

Answer 37

purchased

Question 38

at the time a company is purchased, the amount of goodwill to be recorded as an asset on the purchasing company’s balance sheet

Answer 38

represents the costs associated with the purchase of the company in excess of the fair market value of its assets less any assumed liabilities
Purchase Price — (FMV—L)

Question 39

Major equipment refurbishment costs that extend the equipment’s original anticipated useful life should be

Answer 39

capitalized in the period incurred
and
allocated to expense in the future periods of benefit

Question 40

The fair market value refers to

Answer 40

the excess price above book value — liabilities

Question 41

Goodwill =

Answer 41

Purchase Price + Liabilities — FMV

or

(FMV—L) — (Purchase Price—FMV)

Question 42

at the time a company is purchased, the amount of goodwill to be recorded as an asset on the purchasing company’s balance sheet

Answer 42

represents the costs associated with the purchase of the company in excess of the FMV of it’s assets less any assumed liabilities

Question 43

When is the value of goodwill NOT recorded?

Answer 43

when it increases

Question 44

When is the value of goodwill recorded?

Answer 44

when it decreases it is recorded as a loss

Question 45

major equipment refurbishment costs that extend the equipment’s original anticipated useful life should be

Answer 45

—capitalized in the period incurred
—allocated to expense in the future periods of benefit