Accounting Chapter 7

Depreciation- Accounting Definition

Allocation of an asset's cost to expense over time

Book value exceeds estimated future cash flows

An impairment loss is recorded when:

Performing a tune-up on the delivery truck

Which of the following costs would be expensed?

Trademarks with an indefinite life

Which of the following intangible assets would not be subject to amortization?

Patent

Which of the following is an exclusive right to manufacture a product or to use a process?

Buildings

administrative offices, retail stores, manufacturing facilities, and storage warehouses

Copyrights

-Exclusive right of protection given to the creator of a published work -Granted for the life of the creator plus 70 years -Allows holder to pursue legal action against anyone who attempts to infringe the copyright -Accounting is virtually identical to that of patents

Patents

-Exclusive right to manufacture a product or to use a process -Granted for a period of 20 years

Basket Purchases

-Purchase of more than one asset at the same time for one purchase price -Allocate the total purchase price based on the relative fair values of the individual assets

Trademarks

-Word, slogan, or symbol that distinctively identifies a company, product, or service -Renewed for an indefinite number of 10-year periods -Capitalize legal, registration, and design fees -Advertising costs expensed as incurred

Equipment

-machinery used in manufacturing, computers and other office equipment, vehicles, furniture, and fixtures -The cost of equipment might include sales tax, shipping, assembly, and any other costs to prepare the asset for use

$58,800

A company makes a basket purchase of land, buildings, and equipment with estimated fair values of $70,000, $150,000, and $30,000, respectively. The purchase price is $210,000. How much should be recorded to the Land account?

-Real estate commissions and fees -Inspection costs -Remodeling costs

Costs of getting a building ready for use include items such as:

-Real estate commissions and fees -Back property taxes or other obligations -Clearing, filling, and leveling the land

Costs to get the land ready for use include items such as:

Depreciation- Dictionary Definiton

Decrease in value of an asset

-Straight-line -Declining-balance -Activity-based

Depreciation Methods

STUDY FOR EXAM

Double-Declining-Balance Depreciation Schedule

Impairment

Estimated future cash flows (future benefits) generated for a long-term asset fall below its book value

Patents, Trademarks, Copyrights, Franchises, Goodwill

Examples of Intangible Assets

Land, Land improvements, buildings, Equipment, Natural Resources.

Examples of Tangible Assets

Parking lots, sidewalks, driveways, landscaping, lighting systems, fences, and sprinklers

Examples of land improvements

Double-declining-balance

If an asset is sold at the end of its first year of use, which depreciation method would result in the highest amount of gain (or lowest amount of loss) assuming the asset is used fairly evenly over its life?

9.2%

Papa's Pizza has the following items for the past year: Net sales are $24,128, net income is $2,223, total assets at the beginning of year are $14,898, and total assets at the end of year are $15,465. What is the profit margin?

expensed

Recurring costs such as utilities and insurance are_____ as incurred

Partial-Year Depreciation

What if the delivery truck was purchased during the year, say on March 1, and then used for five years? (Recall annual depreciation = $7,000) Depreciate for portion of the year held Year 1: $7,000 × 10/12 = $ 5,833 Years 2-5: $7,000 per year = $28,000 Year 6: $7,000 x 2/12 = $ 1,167 Total depreciation over life = $35,000

Land

includes the cost of the land and all expenditures necessary to get the land ready for its intended use

10,000

How much depreciation should be recorded for the first year for a delivery truck with a cost of $30,000, an expected life of six years, and an estimated residual value of $6,000? Assume the double-declining-balance method is used.

$ 3,750

How much depreciation should be recorded in the first year for a delivery truck purchased on April 1 with a cost of $30,000, an expected life of five years, and an estimated residual value of $5,000? Assume the straight-line method is used.

Intangible Assets

patents, copyrights, trademarks, franchises, and goodwill