Chapter 7 Accounting (Long-term assets)

No

Is land depreciable?

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

Key factor in classifying items as repairs and maintenance is that:

Units-of-output method

Method that matches usage with revenues of an asset

Net income / Average total assets = return on assets

Return on assets equation

ANY costs to prepare the asset for use

The cost of equipment involves:

limited

The cost of land improvements are capitalized separately from land because land improvements tend to have a ___________ useful life.

1. Sales tax 2. Freight to deliver 3. Installation 4. Legal fees

The costs that should be capitalized in buying new equipment are:

1. Delinquent property taxes 2. Purchase price 3. Legal fees to obtain title

The costs that should be capitalized in the costs of acquiring a new building are:

patent

The exclusive legal right to manufacture a product or to use a process is called a:

Goodwill = Purchase price - Fair value

The formula for goodwill:

Book value

The original cost of the asset less the accumulated depreciation is the:

1. Activity-based methods. 2. Time-based methods.

Two approaches for allocation of the cost of an asset over its service life is:

1. For an asset that will be used extensively in the earlier years of its life. 2. For an asset that will be used less in the later years of its life.

Under what circumstances are accelerated depreciation methods most appropriate?

accumulated depreciation (credit)

What is depreciation expense (debit) paired with on the balance sheet?

Land has an unlimited life

What is different about land from other long term assets?

Beg. book value x Depreciation rate = Depreciation expense

What is the double-declining balance Depreciation equation?

capitilize

When an expenditure is recorded as an asset, we say that we __________ the expenditure.

Residual

___________ value is the amount the company expects to receive for the asset at the end of it's service life.

tangible assets

buildings and machinery a company owns (physical)

Straight-line method

method that allocates an equal portion of the depreciable base to each year of the asset's service life. (most frequent used)

profit margin

net income/sales

Equipment

(Asset) Expensive goods that an organization uses in its daily operations that last for a long time.

Land improvements

Amounts spent to improve the land

book value

As accumulated depreciation goes up, ______ ________ goes down.

limited

Buildings have a(n) _________________ life.

Real estate commissions Back property taxes Title insurance Cost of removing existing building less; salvaged materials from existing building cost of leveling land

What kind of costs come with buying Land?

goodwill

When a company buys another company and the purchase price is greater than the value of the assets aquired, this is called:

copyright

A _____________ is protected by law and gives the creator of published work the exclusive rights.

Franchise

A contractual arrangement in which a company grants the purchaser the exclusive right to use a trade name:

addition

A new major component that is added to an existing asset is considered an:

Declining-balance method

Accelerated method that multiplies a constant percentage rate times the decreasing book value.

Depreciation

Allocation of an asset's cost to expense OVER TIME.

(100/5 years) x 2

What is an example of the double straight-line rate?

Cost of asset - residual value

Depreciable cost=

1. Additions 2. Repairs and maintenance 3. Improvements

Expenditures for assets subsequent to acquisition:

FV = (percentage of worth/total assets) x purchase price

Fair value formula

Expense the costs as incurred

If a company generates its own goodwill, how should these costs be treated?

the assets have different useful lives

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

Trademark

Legal exclusive right to display a logo is an example of a:

intangible assets

long-term assets that have no real physical form but do have value.

reduces

residual value _____________ the total amount of depreciation.