Brainscape's Knowledge GenomeTM

Browse over 1 million classes created by top students, professors, publishers, and experts.


See full index

zAccounting > Chapter 9 Powerpoint > Flashcards

Chapter 9 Powerpoint Flashcards

1
Q

Purchase of long lived assets

A

Recognized as capital expenditures - on balance sheet as asset

recognize when ownership passes to the buyer

Purchased for use in the business to generate future cash flows

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
2
Q

Recognize periodic deprectiation expense during____________________________

A

periods in which assets are used to generate revenue

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
3
Q

_______________ is used to measure long-lived assets at net book value

A

Accmulated depreciation

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
4
Q

Two types of costs incurred during the useful life of a plant asset:

A
  1. Ordinary repairs that maintain the operating efficiency and expected productive life of a plant asset
    - expensed as incurred
  2. Additions and improvements that increase the operating efficiency, productive capacity, or useful life of a plant asset

*both accounted for as capital expenditures

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
5
Q

U.S GAAP requires companies to record plant assets at _______________

A

cost

*cost consists of all expenditures necessary to acquire an asset and make it ready for its intended use

**Consistent with the concept of conservatism

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
6
Q

No ______________ is allowed in the future

A

upward revaluation

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
7
Q

If a capitalized expenditure is listed as a revenue expenditure

A

income will be understated

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
8
Q

Factors used in computing depreciation

A

Cost

Useful life

Salvage value

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
9
Q

Depreciable cost =

A

Cost - Salvage Value

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
10
Q

Straight line method example

A

Cost - Salvage Value = Depreciable Cost

Depreciable Cost / Useful Life = Depreciation expense

13,000 - 1,000 = 12,000

12,000 / 5 = 2400

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
11
Q

Journal entry for depreciation expense

A

Depreciation expense XXX

Accmulated depreciation XXX

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
12
Q

Declining - Balance

A

Accelerated method

Decreasing annual depreciation expense over the asset’s useful life

Double declining-balance rate is double the straight-line rate

Rate applied to book value

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
13
Q

Units-of-Activity

A

Companies estimate total units of activity to calculate depreciation cost per unit

Expense varies based on units of activity

Depreciable cost is cost less salvage value

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
14
Q

Units-of-Activity formula

A

Depreciable Cost / Total Units of Activity = Depreciation cost per unit

Depreciation Cost per unit / Units of Activity during the year = depreciation expense

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
15
Q

Why is each method of depreciation acceptable?

A

Because each recognizes the decline in service potential of the asset in a rational and systematic manner

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
16
Q

Changes in estimates related to factors used in computing depreciation ________________________________

A

impact current and future periods, but not prior periods

*change in salvage value, change in estimated useful life

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
17
Q

If the proceeds exceed the book value, the company recognizes a _______________

A

gain on disposal

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
18
Q

If the proceeds are less than the book value, the company recognizes a ________________

A

loss on disposal

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
19
Q

Gains and Losses on Disposal are reported ___________________________

A

seperately from Revenue and Expense in the income statement

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
20
Q

3 types of disposals of plant assets

A

Retirement

Sale

Exchange

21
Q

Journal entry for eliminating asset

A

Accmulated Depreciation X

Loss* (if applicalbe) Y- X

Plant Asset Y

Gain* (If applicable) X - Y

22
Q

Impairment

A

A permanent decline in the market value of an asset below its book value may result in a large difference between book value and fair value

  • example of accounting conservatism

Implication of write-downs in lower depreciation expense in future years - “Big Bath”

23
Q

If an asset is impaired, a company must _________________________________

A

write-down the asset to its fair value in the year the decline in value occurs

24
Q

Recognizing intangible assets

A

Recognized on balance sheet but because they have economic substance

25
Q

Asset

A

“Probable future economic benefits obtained or controlled by a particular entity as a result of past transactions or events”

26
Q

Copyrights and Patents

A

Recognized when granted

Legal fees to successfully defend them are also capitalized

27
Q

Research and Development Costs (R&D)

A

Expensed as incurred due to the uncertainties in identifying the extent and timing of future benefits of these expenditures

28
Q

Goodwill

A

ONLY recognized in an exchange transaction that involves the purchase of an entire business due to measurement difficulties

29
Q

Intangible Assets - Measurement

A

Initial Costs: The initial cost of acquiring an intangible is recognized as an asset on the balance sheet

Costs to Defend: The costs incurred to successfully defend a patent or copyright are capitalized to the respective intangible asset and amortized over the remaining useful life

30
Q

Initial Costs

A

The initial cost of acquiring an intangible is recognized as an asset on the balance sheet

31
Q

Costs to Defend

A

The costs incurred to successfully defend a patent or copyright are capitalized to the respective intangible asset and amortized over the remaining useful life

32
Q

Goodwill

A

Measured as the excess of purchase price over the fair value of net assets acquired in a business acquisition

33
Q

Goodwill impairment

A

The amount recorded as Goodwil must be written down if a company determines the value of goodwill has permanently declined

34
Q

Intangibles with limited lives are amortized over their ________________

A

usefull lives (shorter of legal life or useful life)

35
Q

Intangible assets have either a _____________ or an ______________

A

limited life; indefinite life

36
Q

Patents legal life

A

20 years

37
Q

Copyrights legal life

A

Life of creator plus 20 years

38
Q

Intangible assets with indefinite lives are ___________

A

not amortized

ex. trademarks/tradenames, goodwill)

39
Q

Franchises and liscences can have either___________

A

a limited life or an indefinite life

40
Q

Amortization is recorded directly to________________________

A

intangile assets accounts; no contra asset account is used

41
Q

Research and Development Costs

A

U.S. GAAP requires all R&D costs to be expensed as incurred

IFRS allows capitalization of some “development” costs but require expensing of “research” costs

42
Q

Lease

A

Contractual agreement in which the owner of an asset (lessor) allows another party (lessee) to use the asset for a period of time at an agreed price

43
Q

Advantages of leasing:

A
  1. Reduced risk of obsolescence
  2. Little or no down payment
  3. Shared tax advantages
  4. Assets and liabilities are not reported for an operating lease (recorded as rental)

Capital lease: lessees show both the asset and the liability on the balance sheet

44
Q

Recognizing long- lived assets on balance sheet impacts

A

Profitability analysis - ROA and Assets Turnover Ratio

Solvency Analysis (leases) - debt to total assets ratio

45
Q

Return on Assets (ROA)

A

Net Income / Average Total Assets

46
Q

Asset Turnover Ratio =

A

Net Sales / Average Total Assets

47
Q

Debt to total assets ratio =

A

Total liabilities / Total Assets

48
Q
A

zAccounting (31 decks)

Brainscape helps you reach your goals faster, through stronger study habits.
© 2024 Bold Learning Solutions. Terms and Conditions