Unit 2

Question 1

Additions

Answer 1

Expenditures on assets which increase or extend them.

Question 2

Avoidable Interest

Answer 2

The amount of interest cost during the period that a company could theoretically avoid if it had not made expenditures for the asset.

Question 3

Capital Expenditure (Asset)

Answer 3

An expenditure on an asset whereby (1) the useful life of the asset is increased, (2) the quantity of units produced from the asset is increased, or (3) the quality of the units produced is enhanced.

Question 4

Capitalization Period

Answer 4

The period of time during which a company must capitalize interest.

Question 5

Historical Cost

Answer 5

The value of an asset measured by the cash or cash equivalent price of obtaining the asset and bringing it to the location and condition necessary for its intended use.

Question 6

Improvement

Answer 6

Expenditures that substitute a better asset for an existing asset.

Question 7

Involuntary Conversion

Answer 7

An asset’s service is terminated through fire, flood, theft, condemnation or some other manner not intended by the owner of the asset.

Question 8

Lump-sum Price

Answer 8

The aggregate price at which a group of assets is acquired.

Question 9

Major Repair

Answer 9

Expenditures made to maintain plant assets whereby the expenditures benefit more than one year or one operating cycle, whichever is longer.

Question 10

Ordinary Repairs

Answer 10

Expenditures made to maintain plant assets in operating condition.

Question 11

Property, Plant, and Equipment

Answer 11

Assets that (1) are acquired for use in operations and not for resale, (2) are long-term in nature and usually subject to depreciation, and (3) possess physical substance.

Question 12

Prudent Cost

Answer 12

The concept that states that if for some reason a company ignorantly paid too much for an asset originally, it is theoretically preferable to charge a loss immediately.

Question 13

Rearrangement and Reinstallation Costs

Answer 13

Expenditures intended to benefit future periods that result from rearranging or reinstalling assets.

Question 14

Replacement

Answer 14

Expenditure that substitutes a similar asset for an existing asset.

Question 15

Revenue Expenditure (Expense)

Answer 15

An expenditure on an asset whereby (1) the useful life of the asset does not increase, (2) the quantity of units produced from the asset does not increase, and (3) the quality of the units produced is not enhanced.

Question 16

Self-constructed Asset

Answer 16

Assets constructed by a company rather than purchased.

Question 17

Weighted-average Accumulated Expenditures

Answer 17

Expenditures weighted by the amount of time (fraction of a year or accounting period) in which interest can be incurred on the cost.