Accounting Chapter 7 Learn Smart

In an exchange of assets where a loss is indicated, which of the following occurs?

The loss is recognized and the new asset is recorded at fair value

this accounting standard says that impairments are permanent and cannot be reversed

US GAAP

What is true about non monetary exchange of assets?

a gain or loss is recognized for the difference between the value of the asset give up and its book value

The cost of land improvements are capitalized separately from land because land improvements tend to have

a limited useful life

The exclusive legal right to manufacture a product or to use a process

a patent

These statements describe what? amortize the cost of the franchise over its life, expense periodic payments as incurred, and capitalize the cost of the franchise

accounting rules for a franchise

Units of production or units of output are alternative terms for the (what type of) depreciation method

activity-based

a new major component that is added to an existing asset is called

an addition

For accounting purposes, depreciation is

an allocation of a cost of an asset

an asset that has no physical substance is referred to as

an intangible asset

to record the expenditure as an asset

capitalize

intangible assets that deal with purchase price plus costs necessary to get asset ready for use are

capitalized

the purchase price and all costs to bring an asset to its desired condition and location for use should be

capitalized

an exclusive right of protection given to a creator of a published work, such as a song, film, painting, photograph, or book

copyright

What are some items that should be capitalized as land improvements?

cost of driveways, lawn sprinkler systems, and sidewalks, cost of fences

what involves both an acquisition and a disposition of an asset?

exchange of fixed assets

If a company generates its own goodwill through advertising or training, how should these costs be treated?

expense the costs as incurred

Intangible assets that deal with research and development costs are

expensed

What are some items capitalized into the cost of a patent?

filing fees, attorney fees to secure patent, and purchase price

a contractual arrangement in which one entity grants the purchaser the exclusive right to use the trade name, formulas, and product rights within a specific geographic area for a specific period of time

franchise

The key factor in classifying items as repairs and maintenance is that

future benefits are not provided beyond those originally anticipated from the asset

an intangible asset that is measured as the consideration paid less the fair value of the net identifiable assets is called

goodwill

which of the following are expenditures for assets subsequent to acquisition?

improvements, additions, and repairs and maintenence

Goodwill may only be recognized

in a business acquisition

What items should be capitalized in the cost of equipment?

legal fees to establish title, freight to deliver the equipment, installation and testing of equipment, sales tax, and insurance on equipment during shipping

most companies set thresholds for capitalized expenditures based on

materiality

what is the formula to compute the return on assets?

net income divided by average total assets

what is the formula for profit margin ratio?

net income/net sales

what is the formula for the asset turnover ratio?

net sales/average total assets

in a basket purchase of assets, the cost must be allocated to the individual assets because

the assets will have different useful lives

Total depreciation recorded over an asset's service life is

the same regardless of the depreciation method used

straight line and declining balance methods allocate the cost of a long-term asset based on _________, while an activity-based method allocates the cost of an asset based on its _________.

time; use

an exclusive right to display a word, slogan, symbol, or emblem that distinctively identifies a company, product, or service

trademark

the residual value of an intangible asset is usually

zero

the formula to calculate the depreciation for the units-of-production method (activity-based depreciation) is

((cost -residual value)/total estimated production) X current-year activity or production

What are some tangible assets?

building, land improvements

What are some intangible assets?

patents, trademarks, and copyrights

Depreciation is process of cost ____________, and not a process of valuation

allocation

allocating the cost of intangible assets to expense is refferfed to as

amortization

allocation of the cost of an intangible asset

amortization

The gain or loss on disposal of an asset is calculated as

amount received less the book value of asset sold

What are some items that are initially recorded as an expense on the income statement?

Advertising costs, internally developed intangibles, and research and development costs

What is the accounting treatment for goodwill acquired in a business acquisition?

Do not amortize, test for impairment, capitalize the goodwill

this accounting standard says that impairments are reversed if value recovers

IFRS

If you purchase land to be used for a new storage facility, which items are capitalized in the cost of land?

Legal fees to secure title, costs to remove and old building, and commissions

this depreciation method is commonly used for tax reporting

MACRS

What are the two steps in the two-step process of measuring impairments?

Test for impairment using the future cash flows and measurement of the impairment and record the loss

What are some costs that should be capitalized in the costs of acquiring a building?

delinquent property taxes, legal fees to obtain title, and purchase price

allocation of the cost of natural resources

depletion

asset's cost minus its residual vale

depreciable cost

allocation of the cost of a tangible fixed asset

depreciation

the allocation of the cost of a tangible asset over its service life is referred to as

depreciation

What are some things that are capitalized as an asset for an internally developed patent?

legal fees and filing fees

When a company purchases another company and the purchase price is greater than the fair value oft he net assets acquired, this excess is referred to as

goodwill

an asset's significant decline in value

impairment

land is purchased and held until price rises

investment

What are some long-term tangible assets?

property and equipment

land is used in the company's operations

property, land, and equipment

the amount the company expects to receive for the asset at the end of its service life

residual value

The amount of use that the company expects to obtain from an asset before disposing of it is referred to as the

service life of the asset

this depreciation method is commonly used for financial statement purposes

straight-line

the depreciation method that allocates an equal amount of the depreciable base to each year of the asset's service life is the

straight-line method

What are the 3 commonly used depreciation methods?

straight-line, activity based, and declining-balance

the 2 categories of long-lived assets are

tangible and intangible

The measurement of an impairment loss in step 2 is the difference between

the asset's book value and its fair value

Straight-line depreciation is calculated as

the depreciable cost divided by the estimated service life of the asset

The formula for calculating declining balance depreciation is

the depreciation rate per year X the book value at the beginning of the year

the book value of an asset is

the original cost of the asset less the accumulated depreciation

What are some natural resources?

timber tracts and mineral deposits

the retirement of a long-lived asset differs from a sale in that

upon retirement, no cash is received