Test 3: Long Lived and Intangible Assets

Question 1

Plant assets

Answer 1

refer to a firm’s long-lived property, plant and equipment.

Question 2

Land improvements

Answer 2

include such improvements as paved parking lots, driveways, private sidewalks, and fences.

Question 3

leasehold improvements

Answer 3

Expenditures made by a business to alter or improve leased property

Question 4

Depreciation

Answer 4

an expense of generating the revenues recognized during the periods that the asset was in use

Question 5

Useful life

Answer 5

is the expected period of economic use-
fulness to a business—that is, the period from the date of acquisition to the expected date
of disposal

Question 6

Salvage value (or residual value)

Answer 6

is the expected net recovery (sales proceeds

disposal costs) when the asset is sold or removed from service

Question 7

Straight-lined method

Answer 7

Annual Depreciation=(Acquisition Cost-Salvage Value)/Estimated Useful Life (in months or years)

Question 8

declining-balance method

Answer 8

And accelerated depreciation method calculates a
company’s depreciation expense as a constant percentage of an asset’s book value as of the beginning of each period

Annual Dep=Book value at beginning of year*double declining balance rate

Question 9

units-of-production method

Answer 9

allocates depreciation in proportion to an asset’s use in
operations.

Depreciation Per Unit= (Acquisition Cost-Salvage Value)/Total Estimated Units of Production

Question 10

Annual Depreciation

Answer 10

Depreciation per unit × Units of production for the period

Question 11

Impairment Loss

Answer 11

If an asset’s remaining book value cannot be recovered through the future cash flows expected to be generated from the asset’s use

Question 12

MACRS

Answer 12

Income Tax Regulation (Modified Accelerated Cost Recovery System)

Question 13

Revenue expenditures

Answer 13

are expenditures relating to plant assets that are expensed when incurred.

two common types:

1) Expenditures for ordinary maintenance and repairs of existing plant assets.

2)Expenditures to acquire low-cost items that benefit the firm for several
periods

Question 14

Capital expenditures

Answer 14

increase the book value of long-lived assets. To capitalize an amount means to increase an asset’s book value by that amount

Two types related to property, plant, and equipment

1) Initial acquisitions and additions.
2) Betterments

Question 15

Betterments

Answer 15

are expenditures that (1) extend the useful life of an asset (2) improve the quality and/or quantity of the asset’s output, or (3) reduce the asset’s operating expenses.

Question 16

Research and Development

Answer 16

not capitalized to the balance sheet as an intangible asset because GAAP guidelines require that these expenditures be expensed when incurred.

Question 17

Amortization

Answer 17

The paying off of debt with a fixed repayment schedule in regular installments over a period of time. Consumers are most likely to encounter amortization with a mortgage or car loan.

Question 18

Goodwill

Answer 18

represents the amount paid by one company in the acquisition of another company, above the amount
that can be attributed to the identifiable net assets of the acquired company.

Question 19

Return on Assets Ratio

Answer 19

ROA=NET Income/AVG Total Assets

Question 20

Asset Turnover

Answer 20

Asset TO=Net Sales/AVG Total Assets