chapter 7 acct

Goodwill

=purchase price -fair value of the net assets acquired.

activity based method

Allocates an asset's cost based on its use

straight-line method

Allocates an equal amount of depreciation to each year of the asset's service life

repairs and maintenance

Expenses that maintain a given level of benefits in the period incurred

Franchise

Local outlets that pay for the exclusive right to use the franchisor company's name and to sell its products within a specified geographical area

addition

Occurs when a new major component is added to an existing asset

improvement

The cost of replacing a major component of an asset

Trademark

a word, slogan, or symbol that distinctively identifies a company, product, or service

4.Which of the following expenditures should be recorded as an expense? a. Repairs and maintenance that maintain current benefits. b. Adding a major new component to an existing asset. c. Replacing a major component of an existing asset. d. Successful legal defense of an intangible asset.

a. Repairs and maintenance that maintain current benefits.

accelerated depreciation method

allocates a higher depreciation in the earlier years of the asset's life and lower depreciation in later years

depriciation

allocating the cost of a long term asset to an expense over its service life.

Book Value

an asset's original cost less accumulated depreciation

patent

an exclusive right to make or sell an invention

1. We normally record a long-term asset at the: a.Cost of the asset only. b. Cost of the asset plus all costs necessary to get the asset ready for use. c. Appraised value. d.Cost of the asset, but subsequently adjust it up or down to appraised value.

b. Cost of the asset plus all costs necessary to get the asset ready for use.

6. The book value of an asset is equal to the: (LO7-4) a.Replacement cost. b.Asset's cost less accumulated depreciation. c.Asset's fair value less its historical cost. d.Historical cost plus accumulated depreciation.

b.Asset's cost less accumulated depreciation

9. Equipment originally costing $95,000 has accumulated depreciation of $30,000. If it sells the equipment for $55,000, the company should record: (LO7-6) a. No gain or loss. b. A gain of $10,000. c. A loss of $10,000. d. A loss of $40,000.

c. A loss of $10,000

material

large enough to influence a decision

Return on Assets

net income/average total assets

profit margin

net income/net sales

Asset Turnover

net sales/average total assets

capitalize

record an expenditure as an asset

Accumulated Depreciation

A contra asset account representing the total depreciation taken to date.

Amortization

Allocation of the cost of an intangible asset over its service life

declining balance method

An accelerated depreciation method that records more depreciation in earlier years and less depreciation in later years

Copyright

An exclusive right granted by the federal government allowing the owner to reproduce and sell an artistic or published work.

7. The balance in the Accumulated Depreciation account represents: (LO7-4) a. The amount charged to expense in the current period. b. A contra expense account. c. A cash fund to be used to replace plant assets. d. The amount charged to depreciation expense since the acquisition of the plant asset.

D. The amount charged to depreciation expense since the acquisition of the plant asset.

service life

How long the company expects to receive benefits from the asset before disposing of it; also referred to as useful life

Land Improvements

Improvements to land such as paving, lighting, and landscaping that, unlike land itself, are subject to depreciation

intangible assets

Long-term assets that lack physical substance, and whose existence is often based on a legal contract

impairment

Occurs when the future cash flows (future benefits) generated for a long-term asset fall below its book value (cost minus accumulated depreciation).

residual value

The amount the company expects to receive from selling the asset at the end of its service life; also referred to as salvage value

Natural Rescources

assets like oil, natural gas, and timber that we can physically use up or deplete

5.Which of the following will maximize net income by minimizing depreciation expense in the first year of the asset's life? a.Short service life, high residual value, and straight-line depreciation. b.Long service life, high residual value, and straight-line depreciation. c.Short service life, low residual value, and double-declining-balance depreciation. d.Long service life, high residual value, and double-declining-balance depreciation.

b.Long service life, high residual value, and straight-line depreciation.

10. The return on assets is equal to the: (LO7-7) a. Profit margin plus asset turnover. b. Profit margin minus asset turnover. c. Profit margin times asset turnover. d. Profit margin divided by asset turnover.

c. Profit margin times asset turnover.

8. Which of the following statements is true regarding the amortization of intangible assets? a. Intangible assets with a limited useful life are not amortized. b. The service life of an intangible asset is always equal to its legal life. c. The expected residual value of most intangible assets is zero. d. In recording amortization, Accumulated Amortization is always credited.

c. The expected residual value of most intangible assets is zero.

3. Research and development costs generated internally: a.Are recorded as research and development assets. b.Are capitalized and then amortized. c. Should be included in the cost of the patent they relate to. d.Should be expensed.

d.Should be expensed.

basket purchase

purchase of more than one asset at the same time for one purchase price

big bath

recording all losses in one year to make a bad year even worse