Chapter 7 Accounting (Long-term assets)
No
Is land depreciable?
future benefits are not provided beyond those originally anticipated from the asset
Key factor in classifying items as repairs and maintenance is that:
Units-of-output method
Method that matches usage with revenues of an asset
Net income / Average total assets = return on assets
Return on assets equation
ANY costs to prepare the asset for use
The cost of equipment involves:
limited
The cost of land improvements are capitalized separately from land because land improvements tend to have a ___________ useful life.
1. Sales tax 2. Freight to deliver 3. Installation 4. Legal fees
The costs that should be capitalized in buying new equipment are:
1. Delinquent property taxes 2. Purchase price 3. Legal fees to obtain title
The costs that should be capitalized in the costs of acquiring a new building are:
patent
The exclusive legal right to manufacture a product or to use a process is called a:
Goodwill = Purchase price - Fair value
The formula for goodwill:
Book value
The original cost of the asset less the accumulated depreciation is the:
1. Activity-based methods. 2. Time-based methods.
Two approaches for allocation of the cost of an asset over its service life is:
1. For an asset that will be used extensively in the earlier years of its life. 2. For an asset that will be used less in the later years of its life.
Under what circumstances are accelerated depreciation methods most appropriate?
accumulated depreciation (credit)
What is depreciation expense (debit) paired with on the balance sheet?
Land has an unlimited life
What is different about land from other long term assets?
Beg. book value x Depreciation rate = Depreciation expense
What is the double-declining balance Depreciation equation?
capitilize
When an expenditure is recorded as an asset, we say that we __________ the expenditure.
Residual
___________ value is the amount the company expects to receive for the asset at the end of it's service life.
tangible assets
buildings and machinery a company owns (physical)
Straight-line method
method that allocates an equal portion of the depreciable base to each year of the asset's service life. (most frequent used)
profit margin
net income/sales
Equipment
(Asset) Expensive goods that an organization uses in its daily operations that last for a long time.
Land improvements
Amounts spent to improve the land
book value
As accumulated depreciation goes up, ______ ________ goes down.
limited
Buildings have a(n) _________________ life.
Real estate commissions Back property taxes Title insurance Cost of removing existing building less; salvaged materials from existing building cost of leveling land
What kind of costs come with buying Land?
goodwill
When a company buys another company and the purchase price is greater than the value of the assets aquired, this is called:
copyright
A _____________ is protected by law and gives the creator of published work the exclusive rights.
Franchise
A contractual arrangement in which a company grants the purchaser the exclusive right to use a trade name:
addition
A new major component that is added to an existing asset is considered an:
Declining-balance method
Accelerated method that multiplies a constant percentage rate times the decreasing book value.
Depreciation
Allocation of an asset's cost to expense OVER TIME.
(100/5 years) x 2
What is an example of the double straight-line rate?
Cost of asset - residual value
Depreciable cost=
1. Additions 2. Repairs and maintenance 3. Improvements
Expenditures for assets subsequent to acquisition:
FV = (percentage of worth/total assets) x purchase price
Fair value formula
Expense the costs as incurred
If a company generates its own goodwill, how should these costs be treated?
the assets have different useful lives
In a basket purchase of assets, the cost must be allocated to the individual assets because:
Trademark
Legal exclusive right to display a logo is an example of a:
intangible assets
long-term assets that have no real physical form but do have value.
reduces
residual value _____________ the total amount of depreciation.