acc ch 7
lump sum purchases
"basket"; several assets purchased in a group at one price
land improvements
- driveways - fences - sprinkler system - signage + lighting
capitalized costs
- purchase price - brokerage commission - survey + legal fees - back property taxes - expenditures for grading / clearing land - removing any unwanted buildings
relative sales value method
A method of allocating basket purchase costs in which the allocation is based on the market values of the products at the split-off point
intangible assets
assets recorded at cost that do not have physical form ex: patents, copyrights, goodwill
disposal
for an asset's _________: remove the asset and its related accumulated depreciation from the books effects: - no gain/loss on disposal - NO effect on total assets, liabilities, or equity
income statement
gains and losses on asset disposals appear on the __________ ______________
inventory
if a portion of the extracted resource is not immediately sold then the unsold amount becomes ___________ (asset)
expense
if all of the extracted resource is sold, then the amount depleted is recorded as an ____________ (cogs)
capital expenditures
increase the asset's capacity or extend its useful life
profit margin ratio
increased by: 1. increasing sales 2. keeping less inventory on hand 3. closing unproductive / low performing facilities, etc
depreciated
land improvements are ____________ ; therefore, recorded in a SEPARATE asset account than land
natural resources
long term assets that are physically used up over tome ex- iron ore, oil, timber
units of production
method allocates a assigned amount of depreciation to each unit of output produced by the asset; uses DEPRECIATION cost
double declining balance
most frequently used accelerated depreciation method
straight line depreciation
not a very accurate method of recording costs and uses DEPRECIATION cost
plant assets
property, plant, and equipment ex- land
capitalization
recording costs as an asset on the balance sheet rather than expensing the costs on the income statement ex- purchases or repairs
book value
reported on the balance sheet as the asset cost minus acc depreciation; DECREASES over time
loss
selling a plant asset: when the cash received is less than the book value
gain
selling a plant asset: when the cash received is greater than the book value
constructing
cost of _______________ a building: - architectural fees - building fees - contractors' charges - payment for labor - interest on money borrowed to finance construction
purchasing
cost of _______________ a building: - purchase price - brokerage commission - sales + other taxes - expenditures to repair + renovate building for intended PURPOSE
research and development
costs incurred to develop and create new products that are recorded as an EXPENSE not an intangible asset
IRS
the ______ permits accelerated depreciation methods to provide an incentive for businesses and save them cash in tax outlays
total asset turnover
the amount of revenue earned per $1 in assets; measures how efficiently and effectively a company uses its assets
useful life
the estimated determinable length of service of a fixed asset
research and development
the most valuable activity that many companies engage in
amortization
the process of allocating to expense the cost of an INTANGIBLE asset
true
true or false: sales tax contributes to the total purchase cost of an asset
depreciation
ways to measure ___________: 1. cost 2. estimated useful life 3. estimated residual value
obselete
when another asset can do the job more efficiently; a depreciation cause for plant assets
double declining balance
writes off a larger amount of cost near the START of the asset's useful life using ORIGINAL cost
repair costs
2 types of __________ _______: - ordinary repairs (expensed immediately as incurred) - capital expenditures (later expensed as depreciation)
depletion
Allocation of the cost of a natural resource over its service life; computed similar to units of production method
straight line depreciation
Method that allocates an equal portion of the depreciation to each accounting period in its useful life
working rule
The capitalization acquisition cost of any asset is the sum of all the costs incurred to bring the asset to its intended use
goodwill
an intangible asset that does not expire and you do NOT amortize only recorded when a business acquires another business + pays price GREATER than net assets of acquired company
all
______ depreciation methods make the book value decline over the life of the asset
land
_______ is NOT depreciated
accumulated depreciation
a contra asset account with a balance that INCREASES over time
MACRS
a special depreciation method used for income tax purposes where each fixed asset is classified into 1 of 9 classes
return on assets
amount of net income earned per $1 in assets; measures how profitably management has used the assets that stockholders and creditors have provided the company
net profit margin
amount of net income per $1 in sales revenue
straight line depreciation
best depreciation method for an asset that generates revenue evenly each period
units of production
best depreciation method for assets that depreciate due to physical use
residual value
expected CASH value of an asset at the end of its useful life; NOT depreciated aka scrap value, salvage value
loss
debited as an expense on the income statement + decreases net income