Chapter #6

Question 1

what is the expense of a used asset called

Answer 1

depreciation expense doesn´t represent market value

Question 2

types of long-term assets

Answer 2

tangible

intangible

Question 3

tangible assets

Answer 3

assets with physical substance

e.g. property, plant, equipment

Question 4

intangible assets

Answer 4

rights, priveledges or benefits

e.g. patens, trademarks, copyrights

Question 5

what does cost of equipment and machinery include

Answer 5

purchase price (acquisition cost)
sales tax
shipping charges
insurance during transit paid by buyer
cost of assembling, installing and testing equipment
cost of painitng companies logo for the first time

Question 6

what tangible asset does not get depreciated

Answer 6

land

Question 7

relative fair market value method

Answer 7

divide cost for several assets purchased together to each of the individual assets

Question 8

what does the cost of land include

Answer 8

purchase/acquistion price
real estate commissions
attoney fees
preparing land for use
tearing down existing structure
closing cost

Question 9

basket purchase of allocation

Answer 9

land and building are purchase together

costs are placed in seperate accounts

Question 10

how does basket purchase of acquisition work

Answer 10

collect seperate prices and use the sum of both as total
determine % of building price from total
multiply % of building with amount paid for both to determine bulding price out of the price paid

Question 11

what does to capitalize mean

Answer 11

to record a cost as an asset rather than as an expense

Question 12

terms that describe allocation of costs

Answer 12

amortization - usage of intangible assets
depreciation - amortization of proprty, plant and equipment
depletion - amortization of natural resources

Question 13

different methods of depreciation

Answer 13

straight line deprecitation
units of production depreciation
declining balance depreciation

Question 14

equation for straight line method depreciation

Answer 14

first calculate the cost of the product

cost - salvage value = depreciable cost / useful life

Question 15

straight line depreciation

Answer 15

most common form of allocate th cost of an asset

resulting depreciationg expense is the same every period

Question 16

salvage value (residual value)

Answer 16

estimated value of an asset at the end of its useful life

Question 17

record depreciation in income statement

Answer 17

depreciation expense

Question 18

record depreciation in balance sheet

Answer 18

annual depreciation expense in retatined earnings as well as seperate account in asset -> accumulated depreciation eqipment

Question 19

what is important to know when writing off intangible assets

Answer 19

subtrate purchase price by slavage volume = … / shorther legal or useful life

Question 20

impairement

Answer 20

permanent decline in the fair market value of an asset such that its book value exceeds its fair market value

Question 21

what is capital expenditures

Answer 21

expenditures made to keep an asset in good working order

remodeling and improvements

Question 22

what happens if managers decide that an asset has a different useful life than first estimated

Answer 22

estimates of useful life and salvage value are revised but not treated as an error - no change for already calculated time

Question 23

how do we calculate the gain or loss of an asset disposal will bring

Answer 23

compare cash received for the sale with asset´s book value at time of disposal
cash > BV -> record gain
cash < BV -> record loss
cash = BV -> no gain or loss

Question 24

calculation of an assets book value

Answer 24

cost - accumulated depreciation

Question 25

where do gains and losses of disposal of operational assets go

Answer 25

income statement

Question 26

presentation of longterm assets on financial statements

Answer 26

under amount the firm paid for as current assets | exception for PPandE

Question 27

what are PP and E presented as on financial statements

Answer 27

amortized - or depreciated cost on balance sheet | investing activities on statement of cash flow

Question 28

what os use of long-term assets recorded as

Answer 28

depreciation-, depletion-, and amortization expense

Question 29

what is return on assets

Answer 29

ratio that measures how well a company is using its its assets to generate icnome

Question 30

equation for return on asset

Answer 30

return on asset = net income / average total assets

Question 31

ratios that help us evaluate a firm´s use of its assets

Answer 31

resturn on assets | asset turnover ratio

Question 32

what does the asset turnover ratio measure

Answer 32

how efficiently is using a company its assets to generate sales

Question 33

equation of asset turnover ratio

Answer 33

asset turnover ratio = net sales / average total assets