Ch. 10 Flashcards Preview

ACCT 301 > Ch. 10 > Flashcards

Flashcards in Ch. 10 Deck (45):
1

Cash discounts for prompt payment, how should the discount be taken?

Company should consider the discount as a reduction in the purchase price of the asset

2

When no interest rate is stated or if the specified rate is unreasonable

Company imputes an appropriate interest rate

3

When imputing an interest rate, companies consider what factors?

Brows credit rating, the amount and maturity date of the note, and prevailing interest rate

4

Cash exchange price of the asset acquired is used for

The basis for recording the asset and measuring the interest element

5

In lump sum purchases the total cost is allocated

Among the various assets on the basis of their relative fair values

6

No monetary assets

Is accounted on the basis of fair value of asset given up or the fair value of the asset received whichever is clearly more evident

7

Companies should recognize what immediately?

Gains and losses on exchange

8

Rationale for immediate recognition is that more transactions have

Commercial substance and gains and losses should be recognized

9

An exchange has commercial substance if

Future cash flows change as a result of that transaction

Two parties economic position change

10

For the exchange of similar assets can the economic position of company change,?

Yes

11

It is possible to exchange similar assets but not have a significant difference in cash flows. So if the company is in the same positions before the exag version the company recognizes?

Loss but generally defers a gain

12

If company receives no cash in exchange it defers

Gain

13

If company receives cash in such exchange it recognizes

Part of gain immediately

14

When the company exchanges non monetary assets and a loss results the companies recognize the loss immediately because

Companies should not value assets at more than their cash equivalent price

15

Should companies recognize a loss whether it has commercial substance or not?

Yes

16

Cost of non monetary asset acquired in exchange for another non monetary asset at the fair value of he asset given up and immediately recognizes a gain

,

17

When should the fair value of the asset received be used?

Only when it is clearly more evident the fair value of asset given up

18

Contribution is some type of asset such as cash securities land building BUT IT COULD ALSO BE

Forgiveness of debt

19

Accounting for contributions should be recognized as

Contributions received as revenues in the period received

20

Some companies promise to give pledge some type of asset in the future

If the promise is UNCONDITIONAL

UNCONDITIONAL : depends only on the passage of time or on de and by the recipient for performance, the company should report contribution expense and related payable immediately

CONDITIONAL : company recognizes the expense in the period benefited by the contribution generally when it transfers the asset

21

Prudent cost

This concept states that if for some reason accompany ignorantly paid too much for an asset originally it is theoretically preferable to charge a loss immediately

22

Costs incurred to achieve greater future benefits should be

Capitalized

23

Whereas expenditures that simply maintain a given level of services should be

Expensed

24

In Oder to capitalize cost , one of the three conditions must be present

1. The useful life of asset must be increased

2. Quantity of units produced from asset must be increased

3. Quality of the units produced must be enhanced

25

Four major expenditures

Additions - increase or extension of existing assets

Improvements and replacements - substitution of an improved asset for an existing one

Rearrangement and reinstallation - movements of assets from one location to another

Repairs- expenditures that maintain assets in condition for operation

26

By definition companies do what to any addition to plant assets because a new asset is created

Capitalize

27

The problem additions have is h

Accounting for any changes related to the existing structure as a result of the addition.

28

Companies substitute one asset for another through

Improvements and replacements

29

Improvement

Is the substitution of a better asset for the one currently used

30

Replacement

Is the substitution of a similar asset

31

If the expenditure increase the future service potential of the asset a company can capitalize it using three ways

1. Substitution approach

2. Capitalize the new cost

3. Charge to accumulated depreciation

32

Substitution approach is correct if what is available

Carrying amount of old asset

33

Capitalize new cost

Capitalizes improvement and keeps the carrying amount of old asset on the books

34

Charge to accumulated depreciation

If company does not improve quantity or quality of the asset itself but instead extends its useful life the company debits expenditure to accumulated depreciation

35

Rearrangement and reinstallation costs

If material : capitalize new costs as an asset to be amortized over future periods expected to benefit

If immaterial: cannot be separated from other operating expenses or if their future benefit is questionable, company should immediately expense

36

Ordinary repAIRS

Maintain assets in operating condition

37

Ordinary repairs are charged to

Expense account in the period incurred on the basis that it is the primary period benefited

38

If a major report occurs server all periods will benefit

True

39

For repairs , a company should handle costs as an

Addition improvement or replacement

40

Generally the book value of asset does not equal the disposed value of asset

True

Reasons: depreciation is an estimate of cost allocation and not a Process of valuation

41

Gain or loss is a correction of

Net income

42

Involuntary conversion

Such as fire flood theft or condemnation

43

If company scraps or abandons an asset without

Any cash recovery it recognize a loss to the asset book. Value

44

If scrap exists the gain or loss that occurs is between

Assets scrap value and its book value

45

If an asset can still be used even though it is fully depreciated

It may be kept on the books at historical cost less depreciation