Accounting Chapter 8

Front 1

long-lived assets

Back 1

the tangible and intangible resources owned by a business and used in its operations over several years

Front 2

tangible assets

Back 2

(fixed assets) have physical substance

Front 3

intangible assets

Back 3

these assets have special rights but no physical substance

Front 4

property, plant, and equipment are ____ assets

Back 4

tangible assets

Front 5

tangible assets include...

Back 5

a. land
b. buildings, fixtures, and equipment
c. natural resources

Front 6

examples of intangible assets

Back 6

patents, copyrights, franchises, licenses, and trademarks

Front 7

cost principle

Back 7

all reasonable and necessary expenditures made in preparing an asset should be recorded as the cost

Front 8

expenditures are capitalized when they are...

Back 8

recorded as part of the cost of an asset instead of expenses in the current period

Front 9

Fixed Asset Turnover Equation

Back 9

Net Sales (or Operating Revenues) / Average Net Fixed Assets

Front 10

fixed asset turnover measures...

Back 10

the sales dollars generated by each dollar of fixed assets used

Front 11

acquisition cost

Back 11

the net cash equivalent amount paid or to be paid for the asset

Front 12

When noncash assets are used as payment, the fair value of the asset is used. This is called the ____

Back 12

cash equivalent price

Front 13

capitalized interest

Back 13

refers to interest expenditures included in the cost of a self-construsted asset

Front 14

ordinary repairs and maintenance

Back 14

- expenditures for normal operating upkeep of long-lived assets
- recorded as EXPENSES

Front 15

revenue expenditures

Back 15

maintain the productive capacity of the asset during the current period only and are recorded as expenses

Front 16

additions and improvements

Back 16

infrequent expenditures that increase an asset's economic usefulness in the future

Front 17

capital expenditures

Back 17

- increase the productive life, operating efficiency, or capcity of the asset
- recorded as increases in ASSETS, not expenses

Front 18

depreciation

Back 18

allocating the cost of buildings and equipment over their productive lives using a systematic and rational method

Front 19

matching principle

Back 19

requires that a portion of an asset's cost be allocated as an expense in the same period that revenues are generated

Front 20

Depreciation Expense (___, ___)

Back 20

+E, - SE

Front 21

Accumulated Depreciation (___, ___)

Back 21

+XA, -A

Front 22

depreciation expense

Back 22

amount of depreciation recorded during each period

Front 23

net book/carrying value

Back 23

acquisition cost of an asset - accumulated depreciation

Front 24

accumulated depreciation is a ___ account

Back 24

contra

Front 25

to calculate depreciation expense, we need ____, ____, and _____

Back 25

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

Front 26

estimated useful life

Back 26

the expected service life of an asset to the present owner

Front 27

depreciation expense is an _____ because ___ life and ___ value are estimates

Back 27

estimate; asset's useful; residual

Front 28

straight-line depreciation

Back 28

Allocates the cost of an asset in equal periodic amounts over its useful life:

(Cost - residual value) x (1 / useful life) = Depreciation Expense

Front 29

Cost - Residual Value (in straight-line depreciation formula) represents ____

Back 29

depreciable cost: the amount to be depreciated

Front 30

1 / useful life in straight-line depreciation formula represents _____

Back 30

straight-line rate

Front 31

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

Back 31

straight-line

Front 32

units-of-production depreciation

Back 32

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

Front 33

depreciable cost (cost - residual cost) / estimated total production

Back 33

depreciation rate per unit of production

Front 34

in units-of-production, depreciation expense is a _____ expense because it varies directly with production or use

Back 34

variable

Front 35

in units-of-production method, ____ expense, _____ depreciation, and ____ value vary directly with units products

Back 35

depreciation
accumulated
book

Front 36

declining-balance depreciation method

Back 36

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

Front 37

for declining-balance depreciation, an asset's book value (can/cannot) be depreciated below residual value

Back 37

CAN

Front 38

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

Back 38

accelerated depreciation

Front 39

most corporations use the IRS-approved ______ to calculate depreciation expense for their tax returns

Back 39

MACRS (Modified Accelerated Cost Recovery System)

Front 40

test for impairment

Back 40

if net book value > estimated future cash flows

Front 41

how to calculate impairment loss

Back 41

impairment loss = net book value - fair value

Front 42

how to record impairment loss

Back 42

-Asset Impairment Loss (+ Loss, - SE)
-Flight Equipment (-A)

Front 43

the disposal of a depreciable asset requires two journal entries: ____, and _____

Back 43

1. an adjusting entry to update D/E and A/C
2. An entry to record the disposal

Front 44

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.

Back 44

gain; loss; operating

Front 45

how to record disposal

Back 45

Depreciation Expense (+E, -SE)
Accumulated Depreciation (+XA, - A)

Cash (+A)
Accumulated Depreciation (-XA, +A)
Flight Equipment (-A)
Gain on Sale of Assets (+ Gain, + SE)

Front 46

natural resources

Back 46

assets that occur in nature, such as mineral deposits, timber tracts, oil, and gas

Front 47

depletion

Back 47

process of allocating the cost of a natural resource over the period of its exploitation

Front 48

natural resources are recorded in conformity with the ______

Back 48

cost principle

Front 49

as a natural resource is used up, its acquisition cost is apportioned in conformity with the _______

Back 49

matching principle

Front 50

how to record depletion

Back 50

Inventory (+A) xxx
Timber tract (-A) xxx
(or Acc. Deplet. +XA, -A)

Front 51

depletion computed during a period is not expensed immediately but instead _______ a a part of the cost of ______

Back 51

capitalized; inventory

Front 52

amortization

Back 52

the process of allocating the acquisition cost of an intangible asset over its useful life

Front 53

examples of intangible assets

Back 53

patents, trademarks, and licenses

Front 54

intangible assets are recorded at historical cost only if _______

Back 54

they have been purchased

Front 55

straight-line

Back 55

definite life - cost is allocated on a ___ method

Front 56

indefinite life - these assets are tested for possible ___, and the asset's ______ is decreased to its fair value if impaired

Back 56

impairment; book value

Front 57

Goodwill (cost in excess of net assets acquired)

Back 57

purchase price - fair value of identifiable assets and liabilities = goodwill to be reported

Front 58

the only way to report goodwill as an asset is to ____ ____ ____

Back 58

purchase another business

Front 59

trademark

Back 59

an exclusive legal right to use a special name, image, or slogan

Front 60

the money spent on developing a trademark is recorded as an ______ rather than capitalized as an ______ _______

Back 60

expense; intangible asset

Front 61

copyright

Back 61

the exclusive right to publish, use, and sell a literary, musical, or artistic work

Front 62

technology

Back 62

costs for computer software and Web development

Front 63

patent (20 years)

Back 63

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

Front 64

franchises

Back 64

a contractual right to sell certain products or services, use certain trademarks, or perform activities in a geographical region

Front 65

licenses and operating rights

Back 65

permit owners to use public property in performing their services