Accounting 201Chapter 07 Key Words

Question 1

Activity-based method

Answer 1

Allocates an asset’s cost based on its use.

Question 2

Addition

Answer 2

Occurs when a new major component is added to an existing asset.

Question 3

Amortization

Answer 3

Allocation of the cost of an intangible asset over its service life.

Question 4

Asset turnover

Answer 4

Net sales divided by average total assets, which measures the sales per dollar of assets invested.

Question 5

Basket purchase

Answer 5

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

Question 6

Big bath

Answer 6

Recording all losses in one year to make a bad year even worse.

Question 7

Book value

Answer 7

Equal to the original cost of the asset minus the current balance in Accumulated Depreciation.

Question 8

Capitalize

Answer 8

Record an expenditure as an asset.

Question 9

Capitalized interest

Answer 9

Interest costs recorded as assets rather than interest expense.

Question 10

Copyright

Answer 10

An exclusive right of protection given to the creator of a published work such as a song, film, painting, photograph, book, or computer software.

Question 11

Declining-balance method

Answer 11

An accelerated depreciation method that records more depreciation in earlier years and less depreciation in later years.

Question 12

Depletion

Answer 12

Allocation of the cost of a natural resource over its service life.

Question 13

Depreciation

Answer 13

Allocation of the cost of a tangible asset over its service life.

Question 14

Franchise

Answer 14

Local outlets that pay for the exclusive right to use the franchisor company’s name and to sell its products within a specified geographical area.

Question 15

Goodwill

Answer 15

The value of a company as a whole, over and above the value of its identifiable net assets. Goodwill equals the purchase price less the fair value of the net assets acquired.

Question 16

Impairment

Answer 16

Occurs when the future cash flows (future benefits) generated for a long-term asset fall below its book value (cost minus accumulated depreciation).

Question 17

Improvement

Answer 17

The cost of replacing a major component of an asset.

Question 18

Intangible assets

Answer 18

Long-term assets that lack physical substance, and whose existence is often based on a legal contract.

Question 19

Land improvements

Answer 19

Improvements to land such as paving, lighting, and landscaping that, unlike land itself, are subject to depreciation.

Question 20

Material

Answer 20

Large enough to influence a decision.

Question 21

Natural resources

Answer 21

Assets like oil, natural gas, and timber that we can physically use up or deplete.

Question 22

Patent

Answer 22

An exclusive right to manufacture a product or to use a process.

Question 23

Profit margin

Answer 23

Net income divided by net sales; indicates the earnings per dollar of sales.

Question 24

Repairs and maintenance

Answer 24

Expenses that maintain a given level of benefits in the period incurred.

Question 25

Residual value

Answer 25

The amount the company expects to receive from selling the asset at the end of its service life; also referred to as salvage value.

Question 26

Return on assets

Answer 26

Net income divided by average total assets; measures the amount of net income generated for each dollar invested in assets.

Question 27

Service life

Answer 27

How long the company expects to receive benefits from the asset before disposing of it; also referred to as useful life.

Question 28

Straight-line method

Answer 28

Allocates an equal amount of depreciation to each year of the asset’s service life.

Question 29

Trademark

Answer 29

A word, slogan, or symbol that distinctively identifies a company, product, or service.