Accounting Chapter 7

Capitalize

record an expenditure as an asset

Goodwill

recorded by the acquiring company for the amount that the purchase price exceeds the fair value of the acquired company's identifiable net assets

Activity Based Depreciation

depreciation is calculated based on the activity associated with the asset

To record developed intangible assets, we...

expense in the income statement most of the costs for internally developed intangible assets in the period we incur those costs

Book Value

original cost of the asset minus the current balance in accumulated depreciation

Intangible Assets

patents, trademarks, copyrights, franchises, and goodwill - long-term assets with no physical substance

Basket Purchase

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

Recording depreciation results in the allocation of the cost of a long-term asset to the years during which the asset provides...?

value

Loss

when you sell an asset for less than its book value

Gain

when you sell an asset for more than its book value

Depreciation Expense Formula

(cost-residual value)/service life

Which of the following items are initially recorded as an expense on the income statement?

-advertising costs (yes) -purchased intangibles (no) -research and development costs (yes)

A truck with an initial cost of $40,000, an estimated residual value of $5000, and estimated service life of 5 years has been sold for $17,000 after year 3. Record the necessary journal entry.

-debit cash 17,000 -debit accumulated depreciation 21,000 -debit loss 2000 -credit equipment 40,000

List some expenditures for assets subsequent to acquisition:

additions, improvements, repairs and maintenance

For accounting purposes, depreciation is...

an allocation of a cost of an asset

Do losses have a debit or credit balance?

debit

A truck with an initial cost of $40,000, an estimated residual value of $5000, and estimated service life of 5 years has been retired after year 3. Record the necessary journal entry.

-debit accumulated depreciation 21,000 -debit loss 19,000 -credit equipment 40,000

A truck with an initial cost of $40,000, an estimated residual value of $5000, and estimated service life of 5 years has been sold for $22,000 after year 3. Record the necessary journal entry.

-debit cash 22,000 -debit accumulated depreciation 21,000 -credit equipment 40,000 -credit gain 3000

Straight Line Depreciation

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

Depreciation

allocation of the cost of a tangible asset over its service life

Amortization

allocation of the cost of an intangible asset

Depletion

allocation of the cost of natural resources

The original cost of an asset minus accumulated depreciation is....

book value

Depreciable Cost formula

cost - residual value

Do gains have a debit or credit balance?

credit

When we recognize depreciation, we allocate a portion of the asset's cost to each year in which the asset...

decreases in value

Depreciation rate per unit

depreciable cost/total units expected to be produced

When do we expense an expenditure?

if it benefits only the current period

When do we capitalize an expenditure as an asset?

if it increases future benefits

We record a long-term asset at...

its cost plus all expenditures necessary to get the asset ready for use

Tangible Assets

land, land improvements, buildings, equipment, and natural resources

Declining Balance Depreciation

more depreciation expense is taken in the early years than in the later years of an asset's life

Residual Value

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

The service life or useful life of an asset is...

the estimated use that the company expects to obtain from the asset before disposing of it.

Service Life

the estimated use the company expects to receive from the asset before disposing of it

Depreciation Method

the pattern in which the asset's depreciable cost (original cost minus residual value) is allocated over time

We record purchased intangible assets at...

their original cost plus all other costs, such as legal and filing fees, necessary to get the asset ready for use.