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65 Cards in this Set

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long-lived assets
the tangible and intangible resources owned by a business and used in its operations over several years
tangible assets
(fixed assets) have physical substance
intangible assets
these assets have special rights but no physical substance
property, plant, and equipment are ____ assets
tangible assets
tangible assets include...
a. land
b. buildings, fixtures, and equipment
c. natural resources
examples of intangible assets
patents, copyrights, franchises, licenses, and trademarks
cost principle
all reasonable and necessary expenditures made in preparing an asset should be recorded as the cost
expenditures are capitalized when they are...
recorded as part of the cost of an asset instead of expenses in the current period
Fixed Asset Turnover Equation
Net Sales (or Operating Revenues) / Average Net Fixed Assets
fixed asset turnover measures...
the sales dollars generated by each dollar of fixed assets used
acquisition cost
the net cash equivalent amount paid or to be paid for the asset
When noncash assets are used as payment, the fair value of the asset is used. This is called the ____
cash equivalent price
capitalized interest
refers to interest expenditures included in the cost of a self-construsted asset
ordinary repairs and maintenance
- expenditures for normal operating upkeep of long-lived assets
- recorded as EXPENSES
revenue expenditures
maintain the productive capacity of the asset during the current period only and are recorded as expenses
additions and improvements
infrequent expenditures that increase an asset's economic usefulness in the future
capital expenditures
- increase the productive life, operating efficiency, or capcity of the asset
- recorded as increases in ASSETS, not expenses
depreciation
allocating the cost of buildings and equipment over their productive lives using a systematic and rational method
matching principle
requires that a portion of an asset's cost be allocated as an expense in the same period that revenues are generated
Depreciation Expense (___, ___)
+E, - SE
Accumulated Depreciation (___, ___)
+XA, -A
depreciation expense
amount of depreciation recorded during each period
net book/carrying value
acquisition cost of an asset - accumulated depreciation
accumulated depreciation is a ___ account
contra
to calculate depreciation expense, we need ____, ____, and _____
1. acquisition cost
2. estimated useful life of company
3. estimated residual (salvage) value at the end of asset's useful life to the company
estimated useful life
the expected service life of an asset to the present owner
depreciation expense is an _____ because ___ life and ___ value are estimates
estimate; asset's useful; residual
straight-line depreciation
Allocates the cost of an asset in equal periodic amounts over its useful life:

(Cost - residual value) x (1 / useful life) = Depreciation Expense
Cost - Residual Value (in straight-line depreciation formula) represents ____
depreciable cost: the amount to be depreciated
1 / useful life in straight-line depreciation formula represents _____
straight-line rate
In the ____ method...
- depreciation expense is constant / year
- accumulated depreciation increases by an equal amount / year
- net book values decreases by the same amount / year until it = estimated residual value
straight-line
units-of-production depreciation
allocates the cost of an asset over its useful life based on the relation of its periodic output to its total estimated cost:

(cost - residual value) / estimated total production X actual production = depreciation expense
depreciable cost (cost - residual cost) / estimated total production
depreciation rate per unit of production
in units-of-production, depreciation expense is a _____ expense because it varies directly with production or use
variable
in units-of-production method, ____ expense, _____ depreciation, and ____ value vary directly with units products
depreciation
accumulated
book
declining-balance depreciation method
allocates the cost of an asset over its useful life based on a multiple of the straight-line rate (often 2x):

(cost - accumulated depreciation) x 2 / useful life = depreciation expense
for declining-balance depreciation, an asset's book value (can/cannot) be depreciated below residual value
CAN
declining-balance method is a _____ _____ method because matches a higher d/e with higher revenues in early years and lower d/e with lower revenues in later years
accelerated depreciation
most corporations use the IRS-approved ______ to calculate depreciation expense for their tax returns
MACRS (Modified Accelerated Cost Recovery System)
test for impairment
if net book value > estimated future cash flows
how to calculate impairment loss
impairment loss = net book value - fair value
how to record impairment loss
-Asset Impairment Loss (+ Loss, - SE)
-Flight Equipment (-A)
the disposal of a depreciable asset requires two journal entries: ____, and _____
1. an adjusting entry to update D/E and A/C
2. An entry to record the disposal
the entry to record the disposal is treated as a ____ or _____. It is not an ____ revenue (or expense) because it arises from peripheral or incidental activities.
gain; loss; operating
how to record disposal
Depreciation Expense (+E, -SE)
Accumulated Depreciation (+XA, - A)

Cash (+A)
Accumulated Depreciation (-XA, +A)
Flight Equipment (-A)
Gain on Sale of Assets (+ Gain, + SE)
natural resources
assets that occur in nature, such as mineral deposits, timber tracts, oil, and gas
depletion
process of allocating the cost of a natural resource over the period of its exploitation
natural resources are recorded in conformity with the ______
cost principle
as a natural resource is used up, its acquisition cost is apportioned in conformity with the _______
matching principle
how to record depletion
Inventory (+A) xxx
Timber tract (-A) xxx
(or Acc. Deplet. +XA, -A)
depletion computed during a period is not expensed immediately but instead _______ a a part of the cost of ______
capitalized; inventory
amortization
the process of allocating the acquisition cost of an intangible asset over its useful life
examples of intangible assets
patents, trademarks, and licenses
intangible assets are recorded at historical cost only if _______
they have been purchased
straight-line
definite life - cost is allocated on a ___ method
indefinite life - these assets are tested for possible ___, and the asset's ______ is decreased to its fair value if impaired
impairment; book value
Goodwill (cost in excess of net assets acquired)
purchase price - fair value of identifiable assets and liabilities = goodwill to be reported
the only way to report goodwill as an asset is to ____ ____ ____
purchase another business
trademark
an exclusive legal right to use a special name, image, or slogan
the money spent on developing a trademark is recorded as an ______ rather than capitalized as an ______ _______
expense; intangible asset
copyright
the exclusive right to publish, use, and sell a literary, musical, or artistic work
technology
costs for computer software and Web development
patent (20 years)
granted by the federal government for an invention; an exclusive right given tot he owner to use, manufacture, and sell the subject of the patent
franchises
a contractual right to sell certain products or services, use certain trademarks, or perform activities in a geographical region
licenses and operating rights
permit owners to use public property in performing their services