Chapter 8 ACCY study Test

Land improvements

Adittions to land that have limited useful lives. EX> parking lots, driveways, and lights

entry for lump sum cash purchase

Debit- building debit-land credit-cash

straight- line depreciation

Depreciation expense= cost-salvage value divided by useful life in periods

patent

Exclusive right to manufacture or sell a patent item or to use a process for 20 years

Ordinary repairs (revenue expenditure)

Expenditures to keep an asset in good condition . They do not increase useful life or productivity. entry: Debit -repairs expense credit- Cash

Betterments (capital expenditure)

Expenditures to make a plant asset more efficient or productive. Include upgrading components and adding additions onto plant assets.

The cost of plant assets should include all of the normal and reasonable expenditures necessary to get the asset in place and ready for its intended use, including repairs to damages incurred after installation

False

Change in an accounting estimate

For plant assets it is changing the estimate of useful life or its salvage value. it only effects current and future depreciation expense.

Sale of asset at book value

If sale price = book value, no gain or loss debit- cash debit- accumulated depreciation- equipment credit- equipment

Discarding partially depreciated asset

Loss is the book value (cost - accumulated depreciation) of the asset when discarded entry: debit- Accumulated depreciation- equipment debit- Loss on disposal of equipment Credit- equipment

Cost of plant assets

Normal, reasonable, and necessary cost in preparing an asset for its intended use. Damaged during unpacking are not added to cost

Lump- sum purchase

Plant assets purchased as a group for a single lump-sum price. We allocate the cost to the assets acquired based on their relative market (or appraised) values

right of use asset (lease)

Rights the lessor grants to the lessee under the terms of a lease.

depletion formula

Step 1. Depletion per unit = (cost - salvage value)/total units of capacity. Step 2. Depletion expense = depletion per unit x units extracted and sold in period

double- declining- balance formula

Step 1: Staright line rate= 100% divided by useful life step 2: double- declining- balance rate = 2 X straight line rate Step 3: depreciation expense= double declining balance rate X beginning- period book value

trademark or brand name

Symbol, name, phrase, or jingle identified with a company, product, or service.

betterments and extraordinary repairs

These expenditures are "capitalized" by adding their costs to the plant asset. Entry: debit- plant asset credit- cash

The cost of a plant asset consists of all necessary and reasonable expenditures to acquire it and prepare it for its intended use. True false question.

True

Building

a purchased buildings cost includes its purchase price, real estate fees, taxes, titles fees, and attorney fees. constructed includes all building fees but not insurance after its completed

natural resources

assets that are physically consumed when used

The factors necessary to compute depreciation include all of the following, except:

book value

Straight- line depreciation after change in accounting estimate

book value - revised salvage value divided by revised remaining useful life

units of production depreciation

charges a varying amount to expense for each period of an asset's useful life depending on its usage

Double- Declining- balance depreciation

charges more depreciation in early years and less depreciation in later years

Asset book value (or book value)

computed as the asset's total cost minus accumulated depreciation

Machinery and equipment

cost includes purchase price, taxes, transportation, insurance while in transit, installation, and testing

Plant assets are recorded at cost, which includes all expenditures necessary to get the asset in place and ready for use. All of the following would be included as part of the cost of a plant asset except:

damage done when unpacking the plant asset

Depletion expense (when not all units extracted are sold)

debit- depletion expense- mineral deposit debit- ore inventory credit- accumulated depletion- mineral deposit

record depreciation expense

debit- deprecation expense credit - accumulated depreciation --"asset type"

Discarding fully depreciated asset entry

debit: accumulated depreciation- Machinery credit- machinery

Depletion expense entry when all units extracted are sold

debit: depletion expense-mineral deposit credit: accumulated depletion- mineral deposit

is the process of allocating the cost of a plant asset to expense while it is in use.

depreciation

Salvage value

estimate of the assets value at the end of its useful life

copyright

exclusive right to publish and sell musical literary work during the life of the creator plus 70 years

Extraordinary repairs (capital expenditure)

expenditures that extend the asset's useful life beyond its original estimate

Land

has an indefinite life and costs include real estate commissions, clearing, grading, and draining

sale of a asset below book value

if sale price < book value --> loss debit-cash debit-loss on disposal of equipment debit-accumulated depreciation-equipment credit-equipment

Sale of asset above book value

if sale price > book value --> gain debit- cash debit-accumulated depreciation-equipment credit- gain on disposal of equipment credit- equipment

Land (improvements/additions) are assets that are additions to land and have limited useful lives, such as walkways and fences.

improvements

leasehold improvements

improvements to a leased (rented) property such as portions, painting, and storefronts. the leesee amortizes these cost over the life of the lease or the life of improvements whichever is shorter.

Amortization

intangible assets with limited useful lives require amortization. it is similar to depreciation and uses the shorter of the legal life or useful life of the intangible for straight-line amortization debit- amortization expense- patents credit- accumulated amortization- patents

Assets that increase the benefits of land, have a limited useful life, such as parking lots and lighting systems, are called:

land improvements

Assets that increase the benefits of land, have a limited useful life, such as parking lots and lighting systems, are called: Multiple choice question.

land improvements

useful life

length of time plant asset is to be used in operations

The purchase of a group of plant assets for one price is called a Blank______ purchase.

lump-sum

before discarding, selling, or exchanging a plant asset

must record depreciation up to that date entry: debit- Depreciation expense credit- accumulated depreciation

Intangible assets

non physical assets used in operations that give companies long- term rights, privileges, or competitive advantages

(Plant/Current) assets purchased as a group in a single transaction for a lump-sum price are allocated the purchase price based on their relative market values.

plant

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

plant

depletion

process of allocating the cost of a natural resource

depreciation

process of allocating the cost of plant asset to expense while in use

franchise or licenses

rights to sell a product or service under specified conditions

units of production formula

step 1: depreciation per unit= cost- salvage value divided by total units of production step 2: depreciation expense= depreciation X units produced in period

Plant assets

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

goodwill

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

eshin Co. purchases a piece of land with several land improvements for $180,000. The land appraises at $120,000 and the land improvements appraise at $80,000. The land should be recorded at what cost?

$108,000 [120,000/(120,000+80,000)] x 180,000 = 108,000

Ion Co. purchased land for $190,000. Ion also paid $5,000 in real estate commissions, $1,000 in legal fees, and $500 in title insurance fees. Ion should record the cost of this land at:

$196,500

Wen Co. purchased a building for $200,000. Wen paid $20,000 in lawyer and title fees. Wen also paid an additional $15,000 to modify the building in order to accommodate his business needs. Wen should record the cost of the building at: Multiple choice question.

$235,000

PT Co. purchased land and an existing building for $200,000. In addition, PT paid real estate commissions of $15,000. PT removed the unwanted building and graded the land for a total cost of $35,000. PT should record the cost of the land at:

$250,000 (200,000+15,000+35,000)

Alin Co. purchases a building for $300,000 and pays an additional $30,000 for title fees and lawyer fees. Alin also pays $20,000 in renovations, including painting, carpet, lighting, etc. Alin should record the cost of the building at:

$350,000

Geo Co. purchased a building for $400,000. In addition, Geo paid $35,000 for taxes and lawyer fees. Geo also paid $60,000 to modify the building, changing the layout specifically for Geo's needs. Geo should record the building at $

$495,000

Which of the following items are plant assets -Equipment with a useful life of one accounting period. -Building used for operations -Land held for expansion -equipment used in operations

-Building used for operations -Equipment used in operations

The cost at which a company records purchases of machinery and equipment should include which of the following? (Check all that apply.)

-installation -shipping fees -Taxes -purchase price

Plant assets should be recorded at cost, including all normal and reasonable expenditures necessary to get the asset in place and ready for its intended use. This would include which of the following costs? (Check all that apply.) -fines incurred for failing to get correct permits -shipping charges -assembling -testng -repairs necessary for damages incurred during installation

-shipping -testing -assembling