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Accounting chapter 7 > chapter 7 > Flashcards

chapter 7 Flashcards

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1
Q

What are long-term assets?

A

Assets actively used in operations for over one or more years and not intended for resale.

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2
Q

What are the two major categories of long-term assets?

A
  • Tangible assets
  • Intangible assets
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3
Q

Define ‘capitalize’ in the context of asset acquisition.

A

To record an expenditure as an asset that will be expensed over time as the asset is used in company operations.

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4
Q

What is an expense in the context of asset acquisition?

A

To record an expenditure as a full expense immediately, reported on the Income Statement.

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5
Q

List examples of tangible assets.

A
  • Land
  • Land Improvement
  • Building
  • Equipment
  • Purchase price
  • Real estate commissions and fees
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6
Q

What costs are capitalized when acquiring tangible assets?

A
  • Purchase/construction cost
  • Sales taxes
  • Shipping
  • Assembly
  • Installation costs
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7
Q

What are basket purchases?

A

Purchase of more than one asset at the same time for one purchase price, recorded in separate accounts based on relative fair values.

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8
Q

Identify the major types of intangible assets.

A
  • Copyright
  • Patent
  • Franchise
  • Trademark
  • Goodwill
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9
Q

Define ‘goodwill’ in accounting.

A

The excess purchase price over the fair value of net identifiable assets when one company acquires another.

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10
Q

What is the usual accounting treatment for ordinary repairs and maintenance?

A

Expense.

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11
Q

What is depreciation?

A

The allocation of the cost of a tangible asset over its useful life.

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12
Q

What is accumulated depreciation?

A

A contra-asset account on the balance sheet that tracks total depreciation recorded against an asset.

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13
Q

What is the formula for calculating carrying value or book value?

A

Cost - Accumulated depreciation.

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14
Q

What are the methods used to calculate depreciation?

A
  • Straight-line method
  • Declining balance method
  • Activity-based method
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15
Q

What is amortization?

A

Similar to depreciation, but applies to intangible assets with definite useful lives.

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16
Q

What is the usual method for amortizing intangible assets?

A

Straight-line amortization.

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17
Q

How is a gain or loss calculated upon disposal of long-term assets?

A

Selling Price - Book Value = Gain/Loss.

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18
Q

What happens when an asset is retired?

A

A loss is typically recognized for the remaining book value.

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19
Q

What is the accounting treatment for extraordinary repairs and maintenance?

A

Capitalize.

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20
Q

What is the definition of ‘residual value’?

A

The amount expected to be received from selling the asset at the end of its service life.

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21
Q

What is the definition of ‘service life’?

A

The estimated use the company expects to receive from the asset before disposing of it.

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22
Q

When should a legal defense of intangible assets be capitalized?

A

When it benefits future periods.

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23
Q

What is the treatment of goodwill in financial statements?

A

Goodwill is recorded at its purchase price minus the fair value of net identifiable assets.

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24
Q

What type of assets are never depreciated?

A

Assets with indefinite lives like land.

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25
What is the journal entry for recording depreciation expense?
* Debit: Depreciation Expense * Credit: Accumulated Depreciation
26
How is the cost of equipment recorded when purchased?
Recorded at the purchase/construction cost plus any necessary costs to prepare it for use.
27
What is the formula for calculating straight-line depreciation?
(Cost - Residual Value) / Useful Life.
28
What is the typical treatment of trademarks and goodwill in terms of amortization?
Not amortized because they have indefinite lives.
29
What is the original cost of the equipment?
40,000
30
What is the accumulated depreciation after 3 years?
21,000
31
What is the book value of the equipment before sale?
19,000
32
What is the selling price of the equipment?
17,000
33
What is the loss incurred from the sale of the equipment?
2,000
34
What account is debited for the cash received from the sale?
Cash (A+)
35
What account is debited to record the loss on the sale of equipment?
Loss (Loss+, SE-)
36
What account is credited for accumulated depreciation?
Accumulated Depreciation (xA-, A+)
37
Which account is credited when equipment is sold?
Equipment (A-)
38
What is the accounting treatment for insurance on the building after construction?
Expensed
39
What account is debited for insurance on the building after construction?
Insurance Expense
40
What is the treatment for permit charges incurred by a delivery driver?
Capitalized
41
What account is debited for permit charges incurred by a delivery driver?
Equipment
42
What is the treatment for insurance on a new building during construction?
Capitalized
43
What account is debited for insurance on a new building during construction?
Building
44
What is the treatment for property tax on land incurred after purchase?
Expensed
45
What account is debited for property tax on land?
Property Tax Expense
46
What is the treatment for sales tax on new equipment purchased?
Capitalized
47
What account is debited for sales tax on new equipment?
Equipment
48
What is the treatment for costs to clear and grade land purchased for a new plant?
Capitalized
49
What account is debited for costs to clear and grade land?
Land
50
What is the treatment for repair costs to fix new equipment damaged during unpacking?
Expensed
51
What account is debited for repair costs of new equipment?
Repair and Maintenance Expenses
52
What is the fair value of land in a basket purchase with total fair values of $70,000, $150,000, and $30,000?
126,000
53
Which of the following is an exclusive right to manufacture a product or use a process?
Patent
54
How much depreciation should be recorded for a delivery truck purchased for $30,000 with a service life of five years and a residual value of $5,000?
$5,000
55
Which intangible asset would not be subject to amortization?
Trademark with an indefinite life
56
What is the gain or loss on the sale of lawn equipment sold for $7,000 originally purchased for $20,000 with $15,000 depreciation?
$(2,000)
57
What is the total asset cost for the truck purchased by Marvel Studios?
88,200
58
What is the depreciation expense calculated for the truck in the first half of the year?
8,320
59
What is the book value of the truck at the end of Year 3?
46,600
60
What is the cash amount received from the sale of the truck at the end of Year 3?
40,000
61
What is the accumulated depreciation of the truck at the end of Year 3?
41,600
62
Fill in the blank: The purchase price of the basket purchase is _______.
210,000
63
Fill in the blank: The estimated residual value of the truck is _______.
5,000

Accounting chapter 7 (3 decks)

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