Accounting Chapter 8

Capitalizing an expenditure rather than recording it as a revenue expenditure

Impacts the total book value of plant assets reported on the balance sheet and the amount of net income reported during a period

Capital Expenditure or Revenue Expenditure Costs incurred prior to using the asset, such as installation and other costs to prepare the asset for use

Capital Expenditure

Capital Expenditure or Revenue Expenditure Costs related to acquiring an asset, such as sales or excise taxes, transportation, and insurance during shipment

Capital Expenditure

_____ is a cost that improves an operating asset and is added to the asset account

Capital Expenditure

______ is the right to produce or sell published work

Copyright

The process of systematically and rationally allocating the cost of a fixed asset over it useful life

Depreciation

Which of the following accounts would not be reported in the property, plant, and equipment section of the balance sheet?

Depreciation Expense - Building

Butler Corporation uses plant assets that are subject to rapid decreases in value due to obsolescence and physical deterioration. Which of the following depreciation methods is most appropriate to measure the decline in the usefulness of the companies assets?

Double Declining Balance Method

________ is the depreciation method considered "accelerated"

Double declining balance method

Which of the following is an intangible asset?

Goodwill

Identify where each of the following accounts would be reported on Coca Cola's financial statement Amortization Expense

Income Statement - Operating Section

Identify where each of the following accounts would be reported on Coca Cola's financial statement Depreciation Expense

Income Statement - Operating Section

Identify where each of the following accounts would be reported on Coca Cola's financial statement Gain on disposal of plant asset

Income Statement - Other revenue and expense section

According to the accounting standards, the costs of intangible assets with an indefinite life, such as goodwill, should

not be amortized, but should be reviewed annually for impairment

Plant assets are depreciated because

the accrual basis of accounting requires matching of costs to revenues

Cash paid to purchase significant amounts of fixed assets would be reported in the statement of cash flows in

the cash flows from investing activities section

Depreciation is a process by which

the cost of plant and equipment is allocated to expense over its useful life

Using different depreciation methods for book purposes versus tax purposes for the same asset is

the direct result of the differing goals of financial and tax accounting

The exclusive right to use a certain name or symbol is called a

trademark

Identify where each of the following accounts would be reported on Coca Cola's financial statement Copyright

Balance Sheet -Intangible Assets

Goodwill can be recorded as an asset when an

Business is purchased and payment is made in excess of the value of the net assets

Capital Expenditure or Revenue Expenditure Costs incurred after putting the asset into service which would extend the assets useful life

Capital Expenditure

Land is not depreciated because

it will provide future benefits for the company for an unlimited period of time

On the balance sheet, the cumulative amount of depreciation recognized to date on a fixed asset is called

Accumulated Depreciation

Identify where each of the following accounts would be reported on Coca Cola's financial statement Goodwill

Balance Sheet - Intangible Assets

Identify where each of the following accounts would be reported on Coca Cola's financial statement Patents

Balance Sheet - Intangible Assets

Identify where each of the following accounts would be reported on Coca Cola's financial statement Accumulated Depreciation

Balance Sheet - Property, Plant, Equipment

Identify where each of the following accounts would be reported on Coca Cola's financial statement Building

Balance Sheet - Property, Plant, Equipment

Identify where each of the following accounts would be reported on Coca Cola's financial statement Loss on disposal of plant asset

Income Statement - Other revenue and expense section

Which of the following is included in the cost of constructing a building

Insurance Costs during construction

Purchase of investment for cash Purchase of equipment for cash Sale of land for cash all of these are example of

Investing activites

Which balance sheet section is most affected by investing activities?

Long Term Assets

Using the straight line depreciation method will cause a company to incur __ tax expense in the early years of an assets life than they would experience using an accelerated method of depreciation

MORE

How should intangible assets be disclosed on the balance sheet?

Net of the costs already amortized

Striker company sold equipment for 4,000. This results in a 1500 loss. What is the impact of this sale on the balance sheet?

Reduce Total Assets

Which of the following costs related to the purchase of production equipment incurred by ABC Company during 2011 would be considered a revenue expenditure?

Repair and Maintenance costs during the equipments first year of service

Example of a capital expenditure?

Replacing an engine in a company car

Capital Expenditure or Revenue Expenditure Costs incurred after putting the asset into service which keep the asset in normal operating

Revenue Expenditure

Which is not a investing activity?

Sale of merchandise for cash

_______ refers to the market value of the asset at the end of its useful life

Salvage Value

_______ is the depreciation method used most frequently

Straight line method

If a companys fixed asset turnover ration decreased from 2010 to 2011, which of the following conclusions can be made?

The company produces less Sales in 2011 for each dollar invested in fixed assets compare to 2010

The accounting life of a intangible assets is determined by

The legal lives or useful lives, whichever is shorter

The company financed the equipment purchase with a bank loan. Interest of 3,000 was paid on the loan during 2011

This item should be considered as a revenue expenditure

The company purchased a 3 year liability insurance policy to cover possible damage caused by the new equipment at a cost of 6,000

This item should be considered as a revenue expenditure

During the installation, the equipment was damaged and repair costs of 2,000 were incurred

This item should be considered as revenue expenditure

3,000 freight costs were paid to ship the equipment from the manufacturer

This item should be included as part of the cost of the equipment

A state agency required that a pollution control device be installed on the equipment at a cost of 5,000

This item should be included as part of the cost of the equipment

It was necessary for an architect to redesign the work space to accommodate the new equipment. A fee of 6,000 was paid

This item should be included as part of the cost of the equipment

Terms of the purchase were 2/10, net 30. Katz paid for the purchase on March 8

This item should be included as part of the cost of the equipment

Which of the following should be included in the acquisition cost of a piece of equipment

Transportation Costs Installation Costs Testing Costs prior to placing the equipment into production

Fly High Airlines acquires a new aircraft. It has an estimated life of 10 years and should be used for 20,000 hours of flight. What is the most appropriate method of depreciation to properly match revenues and expenses

Units of activity method

All of the following below are needed for the calculation of straight line depreciation except

Units produced

A capital expenditure results in a debit to

an asset account

A company should choose a depreciation method that

best allocates the original cost of the asset to the periods benefited by the use of the asset

Expenditures that increase the expected useful life or productivity of the asset are

capital expenditures

If technology changes rapidly, a firm should

consider an accelerated rate of depreciation

The effect of recording depreciation for the year is an

decrease in assets and a decrease in net income

The depreciation method that does not use salvage value in calculating the first years depreciation expense is

double declining balance method

Assets Classified as property, plant, and equipment are reported at

each assets original cost less depreciation since acquisition

_______ is an account that can only exist if one company purchases another business and the cost exceeds the fair market values of the identifiable net assets at the time acquired

goodwill

Resources that are used in operations more than one year with no physical substance are called

intangible assets

A disposal of a used delivery truck is a transaction shown on the statement of cash flows under:

investing activites

A company purchases equipment for 32,000 cash. This transaction should be shown on the statement of cash flows under:

investing activities

Cash flows from acquiring and disposing of long term assets are classified as

investing activities