Accounting Chapter 7 Learn Smart
In an exchange of assets where a loss is indicated, which of the following occurs?
The loss is recognized and the new asset is recorded at fair value
this accounting standard says that impairments are permanent and cannot be reversed
US GAAP
What is true about non monetary exchange of assets?
a gain or loss is recognized for the difference between the value of the asset give up and its book value
The cost of land improvements are capitalized separately from land because land improvements tend to have
a limited useful life
The exclusive legal right to manufacture a product or to use a process
a patent
These statements describe what? amortize the cost of the franchise over its life, expense periodic payments as incurred, and capitalize the cost of the franchise
accounting rules for a franchise
Units of production or units of output are alternative terms for the (what type of) depreciation method
activity-based
a new major component that is added to an existing asset is called
an addition
For accounting purposes, depreciation is
an allocation of a cost of an asset
an asset that has no physical substance is referred to as
an intangible asset
to record the expenditure as an asset
capitalize
intangible assets that deal with purchase price plus costs necessary to get asset ready for use are
capitalized
the purchase price and all costs to bring an asset to its desired condition and location for use should be
capitalized
an exclusive right of protection given to a creator of a published work, such as a song, film, painting, photograph, or book
copyright
What are some items that should be capitalized as land improvements?
cost of driveways, lawn sprinkler systems, and sidewalks, cost of fences
what involves both an acquisition and a disposition of an asset?
exchange of fixed assets
If a company generates its own goodwill through advertising or training, how should these costs be treated?
expense the costs as incurred
Intangible assets that deal with research and development costs are
expensed
What are some items capitalized into the cost of a patent?
filing fees, attorney fees to secure patent, and purchase price
a contractual arrangement in which one entity grants the purchaser the exclusive right to use the trade name, formulas, and product rights within a specific geographic area for a specific period of time
franchise
The key factor in classifying items as repairs and maintenance is that
future benefits are not provided beyond those originally anticipated from the asset
an intangible asset that is measured as the consideration paid less the fair value of the net identifiable assets is called
goodwill
which of the following are expenditures for assets subsequent to acquisition?
improvements, additions, and repairs and maintenence
Goodwill may only be recognized
in a business acquisition
What items should be capitalized in the cost of equipment?
legal fees to establish title, freight to deliver the equipment, installation and testing of equipment, sales tax, and insurance on equipment during shipping
most companies set thresholds for capitalized expenditures based on
materiality
what is the formula to compute the return on assets?
net income divided by average total assets
what is the formula for profit margin ratio?
net income/net sales
what is the formula for the asset turnover ratio?
net sales/average total assets
in a basket purchase of assets, the cost must be allocated to the individual assets because
the assets will have different useful lives
Total depreciation recorded over an asset's service life is
the same regardless of the depreciation method used
straight line and declining balance methods allocate the cost of a long-term asset based on _________, while an activity-based method allocates the cost of an asset based on its _________.
time; use
an exclusive right to display a word, slogan, symbol, or emblem that distinctively identifies a company, product, or service
trademark
the residual value of an intangible asset is usually
zero
the formula to calculate the depreciation for the units-of-production method (activity-based depreciation) is
((cost -residual value)/total estimated production) X current-year activity or production
What are some tangible assets?
building, land improvements
What are some intangible assets?
patents, trademarks, and copyrights
Depreciation is process of cost ____________, and not a process of valuation
allocation
allocating the cost of intangible assets to expense is refferfed to as
amortization
allocation of the cost of an intangible asset
amortization
The gain or loss on disposal of an asset is calculated as
amount received less the book value of asset sold
What are some items that are initially recorded as an expense on the income statement?
Advertising costs, internally developed intangibles, and research and development costs
What is the accounting treatment for goodwill acquired in a business acquisition?
Do not amortize, test for impairment, capitalize the goodwill
this accounting standard says that impairments are reversed if value recovers
IFRS
If you purchase land to be used for a new storage facility, which items are capitalized in the cost of land?
Legal fees to secure title, costs to remove and old building, and commissions
this depreciation method is commonly used for tax reporting
MACRS
What are the two steps in the two-step process of measuring impairments?
Test for impairment using the future cash flows and measurement of the impairment and record the loss
What are some costs that should be capitalized in the costs of acquiring a building?
delinquent property taxes, legal fees to obtain title, and purchase price
allocation of the cost of natural resources
depletion
asset's cost minus its residual vale
depreciable cost
allocation of the cost of a tangible fixed asset
depreciation
the allocation of the cost of a tangible asset over its service life is referred to as
depreciation
What are some things that are capitalized as an asset for an internally developed patent?
legal fees and filing fees
When a company purchases another company and the purchase price is greater than the fair value oft he net assets acquired, this excess is referred to as
goodwill
an asset's significant decline in value
impairment
land is purchased and held until price rises
investment
What are some long-term tangible assets?
property and equipment
land is used in the company's operations
property, land, and equipment
the amount the company expects to receive for the asset at the end of its service life
residual value
The amount of use that the company expects to obtain from an asset before disposing of it is referred to as the
service life of the asset
this depreciation method is commonly used for financial statement purposes
straight-line
the depreciation method that allocates an equal amount of the depreciable base to each year of the asset's service life is the
straight-line method
What are the 3 commonly used depreciation methods?
straight-line, activity based, and declining-balance
the 2 categories of long-lived assets are
tangible and intangible
The measurement of an impairment loss in step 2 is the difference between
the asset's book value and its fair value
Straight-line depreciation is calculated as
the depreciable cost divided by the estimated service life of the asset
The formula for calculating declining balance depreciation is
the depreciation rate per year X the book value at the beginning of the year
the book value of an asset is
the original cost of the asset less the accumulated depreciation
What are some natural resources?
timber tracts and mineral deposits
the retirement of a long-lived asset differs from a sale in that
upon retirement, no cash is received