Accounting Chapter 7
Capitalize
record an expenditure as an asset
Goodwill
recorded by the acquiring company for the amount that the purchase price exceeds the fair value of the acquired company's identifiable net assets
Activity Based Depreciation
depreciation is calculated based on the activity associated with the asset
To record developed intangible assets, we...
expense in the income statement most of the costs for internally developed intangible assets in the period we incur those costs
Book Value
original cost of the asset minus the current balance in accumulated depreciation
Intangible Assets
patents, trademarks, copyrights, franchises, and goodwill - long-term assets with no physical substance
Basket Purchase
purchase of more than one asset at the same time for one purchase price
Recording depreciation results in the allocation of the cost of a long-term asset to the years during which the asset provides...?
value
Loss
when you sell an asset for less than its book value
Gain
when you sell an asset for more than its book value
Depreciation Expense Formula
(cost-residual value)/service life
Which of the following items are initially recorded as an expense on the income statement?
-advertising costs (yes) -purchased intangibles (no) -research and development costs (yes)
A truck with an initial cost of $40,000, an estimated residual value of $5000, and estimated service life of 5 years has been sold for $17,000 after year 3. Record the necessary journal entry.
-debit cash 17,000 -debit accumulated depreciation 21,000 -debit loss 2000 -credit equipment 40,000
List some expenditures for assets subsequent to acquisition:
additions, improvements, repairs and maintenance
For accounting purposes, depreciation is...
an allocation of a cost of an asset
Do losses have a debit or credit balance?
debit
A truck with an initial cost of $40,000, an estimated residual value of $5000, and estimated service life of 5 years has been retired after year 3. Record the necessary journal entry.
-debit accumulated depreciation 21,000 -debit loss 19,000 -credit equipment 40,000
A truck with an initial cost of $40,000, an estimated residual value of $5000, and estimated service life of 5 years has been sold for $22,000 after year 3. Record the necessary journal entry.
-debit cash 22,000 -debit accumulated depreciation 21,000 -credit equipment 40,000 -credit gain 3000
Straight Line Depreciation
allocates an equal amount of depreciation to each year of the asset's service life
Depreciation
allocation of the cost of a tangible asset over its service life
Amortization
allocation of the cost of an intangible asset
Depletion
allocation of the cost of natural resources
The original cost of an asset minus accumulated depreciation is....
book value
Depreciable Cost formula
cost - residual value
Do gains have a debit or credit balance?
credit
When we recognize depreciation, we allocate a portion of the asset's cost to each year in which the asset...
decreases in value
Depreciation rate per unit
depreciable cost/total units expected to be produced
When do we expense an expenditure?
if it benefits only the current period
When do we capitalize an expenditure as an asset?
if it increases future benefits
We record a long-term asset at...
its cost plus all expenditures necessary to get the asset ready for use
Tangible Assets
land, land improvements, buildings, equipment, and natural resources
Declining Balance Depreciation
more depreciation expense is taken in the early years than in the later years of an asset's life
Residual Value
the amount the company expects to receive from selling the asset at the end of its service life
The service life or useful life of an asset is...
the estimated use that the company expects to obtain from the asset before disposing of it.
Service Life
the estimated use the company expects to receive from the asset before disposing of it
Depreciation Method
the pattern in which the asset's depreciable cost (original cost minus residual value) is allocated over time
We record purchased intangible assets at...
their original cost plus all other costs, such as legal and filing fees, necessary to get the asset ready for use.
