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jeremy harmon > Chapter 7 Financial Accounting > Flashcards

Chapter 7 Financial Accounting Flashcards

1
Q

What are two categories of long lived assets?

A

Plant Assets

Intangible Assets

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2
Q

What are plant assets?

A

Intangible assets

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3
Q

What are 3 examples of plant assets?

A

Land
Buildings
Equipment

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4
Q

Intangible assets

A

Carry special rights without physical substance

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5
Q

What are 3 examples of Intangible Assets?

A

Patents
Copyrights
Trademarks

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6
Q

In terms of the plant asset account land found on the balance sheet, what is the related expense account on the income statement?

A

None

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7
Q

In terms of the plant asset account buildings and equipment found on the balance sheet, what is the related expense account on the income statement?

A

Depreciation

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8
Q

In terms of the plant asset account furniture and fixtures found on the balance sheet, what is the related expense account on the income statement?

A

Depreciation

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9
Q

In terms of the plant asset account land improvements found on the balance sheet, what is the related expense account on the income statement?

A

Depreciation

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10
Q

In terms of the plant asset account natural resources found on the balance sheet, what is the related expense account on the income statement?

A

Depletion

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11
Q

In terms of the intangibles account found on the balance sheet, what is the related expense account on the income statement?

A

Amortization

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12
Q

Cost of a Plant Asset

A

Sum of all costs incurred to bring the asset to its intended use

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13
Q

What are 4 costs associated with the plant asset land?

A

Purchase price
Commissions
Survey and legal costs
Removal of old buildings

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14
Q

What are 4 costs associated with the plant asset land improvements?

A

Fencing
Paving
Security Systems
Lighting

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15
Q

What are 4 costs associated with the plant asset buildings?

A

Purchase price
Commissions
Sales and other taxes
Repairs and renovation for intended use

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16
Q

What are 4 costs associated with the plant asset machinery and equipment?

A

Purchase price
Insurance in transit
Sales taxes
Installation

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17
Q

Lump-Sum Purchases

A

Companies purchase several assets in a group for one price

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18
Q

How is cost determined in lump-sum purchases?

A

Cost is allocated to individual assets by on their market values

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19
Q

What are capital expenditures not?

A

They are assets NOT expenses

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20
Q

Capital Expenditure

A

Increase capacity or extend life

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21
Q

What are 2 examples of Capital Expenditures?

A

Major overhaul

Building additions

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22
Q

Immediate Expense

A

Maintain or restore to working order

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23
Q

What are 2 examples of Immediate Expenses?

A

Minor repairs

Painting

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24
Q

How does a company determine if an expenditure should be capitalized or expensed?

A

Companies set a dollar amount

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25
Q

What 3 things do you do to measure depreciation on plant assets?

A
  • Plant Assets wear out or grow obsolete over time
  • The cost of a plant asset is allocated to an expense over its life
  • Matches expense of using the asset to the revenues the asset helped produce
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26
Q

What is the only plant asset that does not have depreciation?

A

Land because it has an unlimited life

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27
Q

What 2 things is Depreciation not?

A

A process of valuation

A method of setting aside cash to replace assets

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28
Q

What are the 3 things needed to measure depreciation?

A

Cost of the plant asset
Estimated useful life
Estimated residual value

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29
Q

Estimated useful life

A

How long the company expects to use the asset

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30
Q

Estimated residual value

A

Expected cash value of asset at the end of its life

31
Q

What is another name for residual value?

A

Salvage Value

32
Q

What value can the residual be?

A

Zero

33
Q

Depreciable Cost =

A

Assets cost - Estimated Residual Value

34
Q

What are the 3 Depreciation methods?

A

Straight Line (S/L)
Units of Production (UOP)
Double-declining balance (DDB)

35
Q

GO TO STRAIGHT LINE DEPRECIATION SLIDE TO FIGURE OUT HISTORICAL COST

A

Slide 7-13

36
Q

Each year what is the impact of depreciation?

A

Accumulated Depreciation increases

Book value decreases

37
Q

Book value =

A

Cost - accumulated depreciation

38
Q

At the end of the assets life what does book value equal?

A

Residual Value

39
Q

What can the book value NEVER be below?

A

Residual Value

40
Q

What Depreciation method to most companies use for external reporting?

A

Straight-line

41
Q

For tax purposes what do most companies use in terms of depreciation?

A

Accelerated Depreciation

42
Q

What system do we use for tax?

A

Modified Accelerated Cost Recovery System (MACRS)

43
Q

Modified Accelerated Cost Recovery System (MACRS

A

Accelerated system used for big expenses

44
Q

What 2 things do larger deductions in an assets life help?

A

Reduces Taxes

Increase Cash Flow

45
Q

What can’t you do to an asset you don’t own?

A

Depreciate it

46
Q

When is the only time you can depreciate an asset?

A

During the time period that you own it

47
Q

What are the 3 ways a plant asset can be disposed when a company is done with it?

A

Discarded
Sold
Exchanged

48
Q

Discarding a Plant Asset

A

Get rid of an asset without gaining anything

49
Q

Selling a Plant Asset

A

Will get something in return for getting rid of the asset

50
Q

Exchanging a Plant Asset

A

Trading assets for other assets

51
Q

What 2 things do you need to do before accounting for the disposal of the plant asset?

A

Depreciation is updated

Final Book Value is determined

52
Q

When you sell a Plant Asset if the book value is greater than the cash received it is a —.

A

Gain

53
Q

When you sell a Plant Asset if the book value is less than the cash received it is a —.

A

Loss

54
Q

A gain in terms of selling a plant asset is…

A

Is an income statement account, similar to revenue and increases net income

55
Q

A loss in terms of selling a plant asset is…

A

An income statement account, similar to an expense and decreases net income

56
Q

What are 4 examples of Natural Resources?

A

Oil
Minerals
Coal
Timber

57
Q

What are the 2 categories of Intangibles?

A

Finite Lives that can be measured

Indefinite Lives

58
Q

Finite Lives that can be measured is the intangibles…

A

Estimated useful life

59
Q

Are finite lives amortized?

A

Yes they are amortized using the straight line method of depreciation

60
Q

Amortization reduces..

A

The intangible asset in the finite life category

61
Q

There is no…

A

Accumulated Amortization Account

62
Q

Indefinite Lives of Intangibles

A

No idea how long the asset will last for

63
Q

What are 2 characteristics of the indefinite live category of intangibles?

A

Not amortized

Tested annually for loss in value

64
Q

What are 3 examples of intangibles that do not amortize?

A

Copyrights
Trademarks and Trade Names
Franchises and Licenses

65
Q

What is an example of an intangible that amortizes?

A

Patents

66
Q

Patents

A

Federal grants that give holder exclusive right to produce and sell an invention for 20 years

67
Q

A patent has a —- year legal life.

A

20

68
Q

Copyrights

A

Exclusive right to sell a book, music, file or other work of art; lasts for the life of the author + 70 years

69
Q

Trademarks and Trade Names

A

Distinctive identification of product or service; a logo or catchphrase

70
Q

Franchises and Licenses

A

Right to sell a product or service with specific conditions, such as chain restaurants

71
Q

You cannot estimate useful life on —.

A

Goodwill

72
Q

What are 3 characteristics of Goodwill?

A
  1. Only recorded when an entire business is purchased (purchase price exceeds fair value of net assets of business)
  2. Represents earning power of purchased business
  3. Not amortized
73
Q

Historical Cost

A

What I actually paid for something

jeremy harmon (108 decks)

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