Accounting 201 Chapter 8

Front 1

What are plant assets?

Back 1

Tangible assets used in a company's operations that have a useful life of more than one accounting period

Front 2

What does cost include?

Back 2

All normal and reasonable expenditures necessary to get the asset in place and ready for its intended use

Front 3

What does the cost of buildings include?

Back 3

The cost of purchasing or constructing a building , purchase price, brokerage fees, taxes, title fees, attorney fees, repairs or renovations, materials and labor, and indirect overhead costs

Front 4

What are land improvements?

Back 4

Additions to land and have limited useful life examples are parking lot surfaces , driveways, and Landscaping

Front 5

What does the cost of land include?

Back 5

All expenditures necessary to make that property ready for its intended use

Front 6

What is depreciation?

Back 6

The process of allocating the cost of a plant asset to an expense in the accounting periods benefiting from its use

Front 7

What is salvage value?

Back 7

An estimate of the assets value at the end of its benefit period

Front 8

What is useful life?

Back 8

The length of time a asset is productively used in a company's operations

Front 9

What does inadequacy refer to?

Back 9

The insufficient capacity of a company's plant assets to meet its growing productive demands

Front 10

What does obsolescence refer to?

Back 10

The condition of a plant asset that is no longer useful in producing goods or services with a competitive Advantage because of new inventions and improvements

Front 11

What are three methods for calculating depreciation?

Back 11

Straight line method, units of production method, and declining balance method

Front 12

What is the straight-line method ratio?

Back 12

(Cost - salvage value) ÷ useful life in Periods

Front 13

What is the entry to record depreciation?

Back 13

Debit depreciation expense and credit accumulated depreciation

Front 14

What is asset Book value?

Back 14

The assets total cost- its accumulated depreciation

Front 15

How do you compute the straight-line depreciation rate?

Back 15

100% ÷ useful life

Front 16

What is the units of production depreciation method?

Back 16

A method that charges of varying amount to expense for each period of an assets useful life depending on its usage

Front 17

What are the two steps in finding the units of production depreciation?

Back 17

1. Depreciation per unit = (cost - salvage value) ÷ total units of production

2. depreciation expense = depreciation per unit X units produced in period

Front 18

What is the accelerated depreciation method?

Back 18

A method that yields larger depreciation expense in the early years of an asset to life and less depreciation in later years

Front 19

What is the most common accelerated method?

Back 19

The declining balance method of depreciation

Front 20

What are the three steps to calculate the declining balance method?

Back 20

1. Straight-line rate = 100% ÷ useful life

2. Double-declining-balance rate = 2 × straight-line rate

3. Depreciation expense = double-declining-balance rate × beginning-period book value

Front 21

What is the modified accelerated cost recovery system? Macrs

Back 21

Rules that allow straight-line depreciation for some assets but that requires accelerated depreciation for most kinds of assets for tax purposes

Front 22

What is the ratio to record the change in estimates for depreciation?

Back 22

(Book value - revised salvage value) ÷ revised remaining useful life = new depreciation expense

Front 23

When is the change in an accounting estimate reflected?

Back 23

In all current and future financial statements , not in Prior statements

Front 24

What is impairment of assets?

Back 24

A permanent Decline in the fair value of an asset relative to its Book value

Front 25

What are Revenue expenditures?

Back 25

Also called income statement expenditures they are additional costs of plant assets that do not materially increase the assets life or productive capabilities so they're recorded as expenses

Front 26

What are capital expenditures?

Back 26

Also called balance sheet expenditures they are additional costs of plant assets that provide benefits extending beyond the current period and they are debited to the asset account

Front 27

What are ordinary repairs?

Back 27

Expenditures to keep an asset in normal, good operating condition so they are recorded as an expense

Front 28

What are betterments / improvements?

Back 28

Expenditures that make a plant asset more efficient or productive and are added to the asset cost

Front 29

What are some examples of betterments / improvements?

Back 29

Replacing manual controls with automatic controls, or adding a new Wing or dock to a warehouse.

Front 30

What are extraordinary repairs?

Back 30

Expenditures extending the assets useful life beyond its original estimate and they are added to the assets cost

Front 31

When is a plant asset discarded?

Back 31

When it is no longer useful to the company and it has no market value

Front 32

When is an asset said to be fully depreciated?

Back 32

When accumulated depreciation equals the assets cost

Front 33

What is the entry to record discarding an asset?

Back 33

debit accumulated depreciation of the asset and credit the asset

Front 34

Entry to record disposal of an asset that still has value

Back 34

Debit accumulated depreciation of the asset , debit loss on disposal of equipment , and credit the asset

Front 35

Entry to record the sale of an asset at Book value

Back 35

Debit cash , debit accumulated depreciation of the asset , and credit the asset

Front 36

Entry to record the sale of an asset above Book value

Back 36

Debit cash , debit accumulated depreciation of the asset , credit gain on disposal of equipment , credit equipment

Front 37

Entry to record the sale of an asset at below Book value

Back 37

Debit cash , debit loss on disposal of equipment , debit accumulated depreciation of the asset, and credit the asset

Front 38

What are natural resources?

Back 38

Assets that are physically consumed when used

Front 39

What is the depletion?

Back 39

The process of allocating the cost of a natural resource to the period when it is consumed ( depletion is recorded very similar to depreciation)

Front 40

2 steps to calculate depletion expense?

Back 40

1. Depletion per unit = (cost - salvage value) ÷ total units of capacity

2. Depletion expense = Depletion per unit × units extracted and sold in period

Front 41

Entry to record depletion expense

Back 41

Debit depletion expense and credit accumulated depletion

Front 42

Entry to record depletion expense with ore inventory left over

Back 42

Debit depletion expense, debit ore inventory , and credit accumulated depletion

Front 43

What are intangible assets?

Back 43

Non physical assets used in operations that confer on their owners long-term rights, privileges, or competitive advantages ( they also can have a limited life or indefinite life)

Front 44

What is amortization?

Back 44

Similar to depreciation , when the cost of a limited life intangible asset is expensed over its estimated useful life

Front 45

Do we amortize an indefinite life intangible asset?

Back 45

No but if it is later judge to have a limited life then it will be amoritized

Front 46

What is impairment?

Back 46

A loss in value of an indefinite life intangible asset found through a test for impairment

Front 47

What is a patent?

Back 47

An exclusive right granted to its owner to manufacture and sell a patented an item or use a process for 20 years

Front 48

The entry to record amortization of an asset

Back 48

Debit amortization expense of the asset and credit accumulated amortization

Front 49

What is a copyright?

Back 49

It gives its owner the exclusive right to publish and sell and musical, literary, or artistic work during the life of the Creator plus 70 years

Front 50

What are franchises and licenses?

Back 50

Rights a company or government grants an entity to deliver a product or service under specific conditions

Front 51

What is the trademark / trade name?

Back 51

A symbol, name, phrase or jingle identified with a company, product, or service

Front 52

What is Goodwill?

Back 52

The amount by which a company's value exceeds the value of its individual assets and liabilities

Front 53

Who grants a lease?

Back 53

The lessor

Front 54

Who secures the right to possess and use the property in the lease?

Back 54

The lessee

Front 55

What is a leasehold?

Back 55

The rights the lessor grants to the lessee under the terms of the lease

Front 56

What are leasehold improvements?

Back 56

Alterations or improvements to the leased properties such partitions, painting, and storefronts

Front 57

What do other intangibles include?

Back 57

Software, non-compete Covenants, customer list, and so forth

Front 58

What is the total asset turnover ratio?

Back 58

Net sales ÷ average total assets