Management Ch. 7 - Exam 2

trademarks can be registered and renewed for

an indefinite number of 10 year periods

depreciable cost =

asset's cost - residual value

expense an expenditure if it:

benefits only the current period

gain is a ____ balance

credit

declining-balance: FINAL YEAR depreciation expense is whatever reduces book value down to

residual value

copyright lasts for

the life of creator plus 70 years

loss is a ___ balance

debit

STRAIGHT-LINE depreciation expense equation

depreciable cost / service life

ACTIVITY-BASED method depreciation rate (per unit) equation

depreciable cost / total units expected to be produced

(most common) double-declining-balance method means you

divide 2 by the estimated service life

impairment is when

expected future cash flows/future benefits of an asset fall below its book value

an internally developed patent requires patent to be recorded only for

intangible asset ONLY including legal and filing fees

an externally purchased patent requires patent to be recorded as an

intangible asset covering ALL costs

DECLINING-BALANCE is a

multiple of the straight-line rate

return on assets equation

net income / average total assets or profit margin * asset turnover

recording a loss due to impairment reduces ___ and ___

net income on income statement and total assets on balance sheet

book value

original cost of asset - accumulated depreciation

intangible assets inclue

patents, trademarks, copyrights, franchises, goodwill

ACTIVITY-BASED method depreciation expense equation

per unit rate * # of units of activity in period

impairments under GAAP are

permanent, cannot write back up but can write down further

basket purchase

purchase of more than one asset at the same time for one purchase price often exceeds fair value of stand-alone selling prices

goodwill is reported by the acquiring company for the amount the

purchase price exceeds the fair value of the acquired company's identifiable assets

to capitalize an expenditure means to:

record the expenditure as an asset

to expense an expenditure means to:

record the full expenditure as an expense immediately

types of expenditures (that most times are capitalized as an asset)

repairs + maintenance (capitalized only if benefits future), additions, improvements, litigation costs

materiality determines

whether or not to actually capitalize an expenditure as an asset if it is simply under a certain $ amount - expense

STRAIGHT-LINE change in depreciation estimate equation

(book value at end of said year - new estimated residual value) / new remaining service life can only be updated for current & future years, can never update prior years

3 most common methods for calculating depreciation

1. straight-line - allocates equal amt of dep. per year 2. declining-balance - accelerated dep. year to year 3. activity-based - allocation based on USE (miles driven, hours used)

retirement of long-term asset record

DEBIT: accumulated depreciation DEBIT: loss CREDIT: equipment if insurance collected on retirement, looks same as a sale

record purchase of franchises or patents:

DEBIT: amortization expense CREDIT: franchise or patent

GAIN of equipment record

DEBIT: cash DEBIT: accumulated depreciation CREDIT: equipment CREDIT: gain

LOSS of equipment record

DEBIT: cash DEBIT: accumulated depreciation DEBIT: loss CREDIT: equipment

record for depreciation of tangible asset:

DEBIT: depreciation expense CREDIT: accumulated depreciation

exchange of long-term assets record (gain ex) 2 debit 3 credit

DEBIT: equipment (new) DEBIT: accumulated depreciation (old) CREDIT: equipment (old) CREDIT: cash CREDIT: gain

if an asset is impaired, record loss:

DEBIT: loss CREIDT: (example) trademarks

costs incurred to conduct research and to develop a new product or process are ____

NOT reported as an intangible asset in balance sheet they are expensed as incurred directly on income statement

the expected residual value of intangible assets are usually

ZERO, unless plan to sell

amortization

allocating the cost of intangible assets to expense

accounting definition of depreciation

allocation of an asset's cost to an expense over time 'depreciation' used for tangible assets 'allocation' used for intangible assets

natural resources are

capitalized, and as used up, depletion expense is recorded

land improvements, buildings, and equipment are all necessary to get land ready for its intended use. it _____ to land

capitalizes

gain or loss on income statement comes from the difference between

cash received for sale and book value

accumulated depreciation is what type of account

contra asset - reduces an asset account & increases year by year

capitalize an expenditure as an asset if it increases:

future benefits

sale of long-term assets results in either a

gain or loss