Chapter 7 Financial Accounting Flashcards Preview

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Flashcards in Chapter 7 Financial Accounting Deck (73):
1

What are two categories of long lived assets?

Plant Assets
Intangible Assets

2

What are plant assets?

Intangible assets

3

What are 3 examples of plant assets?

Land
Buildings
Equipment

4

Intangible assets

Carry special rights without physical substance

5

What are 3 examples of Intangible Assets?

Patents
Copyrights
Trademarks

6

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

None

7

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?

Depreciation

8

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?

Depreciation

9

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

Depreciation

10

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

Depletion

11

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

Amortization

12

Cost of a Plant Asset

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

13

What are 4 costs associated with the plant asset land?

Purchase price
Commissions
Survey and legal costs
Removal of old buildings

14

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

Fencing
Paving
Security Systems
Lighting

15

What are 4 costs associated with the plant asset buildings?

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

16

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

Purchase price
Insurance in transit
Sales taxes
Installation

17

Lump-Sum Purchases

Companies purchase several assets in a group for one price

18

How is cost determined in lump-sum purchases?

Cost is allocated to individual assets by on their market values

19

What are capital expenditures not?

They are assets NOT expenses

20

Capital Expenditure

Increase capacity or extend life

21

What are 2 examples of Capital Expenditures?

Major overhaul
Building additions

22

Immediate Expense

Maintain or restore to working order

23

What are 2 examples of Immediate Expenses?

Minor repairs
Painting

24

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

Companies set a dollar amount

25

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

-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

26

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

Land because it has an unlimited life

27

What 2 things is Depreciation not?

A process of valuation
A method of setting aside cash to replace assets

28

What are the 3 things needed to measure depreciation?

Cost of the plant asset
Estimated useful life
Estimated residual value

29

Estimated useful life

How long the company expects to use the asset

30

Estimated residual value

Expected cash value of asset at the end of its life

31

What is another name for residual value?

Salvage Value

32

What value can the residual be?

Zero

33

Depreciable Cost =

Assets cost - Estimated Residual Value

34

What are the 3 Depreciation methods?

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

35

GO TO STRAIGHT LINE DEPRECIATION SLIDE TO FIGURE OUT HISTORICAL COST

Slide 7-13

36

Each year what is the impact of depreciation?

Accumulated Depreciation increases
Book value decreases

37

Book value =

Cost - accumulated depreciation

38

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

Residual Value

39

What can the book value NEVER be below?

Residual Value

40

What Depreciation method to most companies use for external reporting?

Straight-line

41

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

Accelerated Depreciation

42

What system do we use for tax?

Modified Accelerated Cost Recovery System (MACRS)

43

Modified Accelerated Cost Recovery System (MACRS

Accelerated system used for big expenses

44

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

Reduces Taxes
Increase Cash Flow

45

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

Depreciate it

46

When is the only time you can depreciate an asset?

During the time period that you own it

47

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

Discarded
Sold
Exchanged

48

Discarding a Plant Asset

Get rid of an asset without gaining anything

49

Selling a Plant Asset

Will get something in return for getting rid of the asset

50

Exchanging a Plant Asset

Trading assets for other assets

51

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

Depreciation is updated
Final Book Value is determined

52

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

Gain

53

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

Loss

54

A gain in terms of selling a plant asset is...

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

55

A loss in terms of selling a plant asset is...

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

56

What are 4 examples of Natural Resources?

Oil
Minerals
Coal
Timber

57

What are the 2 categories of Intangibles?

Finite Lives that can be measured
Indefinite Lives

58

Finite Lives that can be measured is the intangibles...

Estimated useful life

59

Are finite lives amortized?

Yes they are amortized using the straight line method of depreciation

60

Amortization reduces..

The intangible asset in the finite life category

61

There is no...

Accumulated Amortization Account

62

Indefinite Lives of Intangibles

No idea how long the asset will last for

63

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

Not amortized
Tested annually for loss in value

64

What are 3 examples of intangibles that do not amortize?

Copyrights
Trademarks and Trade Names
Franchises and Licenses

65

What is an example of an intangible that amortizes?

Patents

66

Patents

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

67

A patent has a ---- year legal life.

20

68

Copyrights

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

69

Trademarks and Trade Names

Distinctive identification of product or service; a logo or catchphrase

70

Franchises and Licenses

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

71

You cannot estimate useful life on ---.

Goodwill

72

What are 3 characteristics of Goodwill?

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

Historical Cost

What I actually paid for something

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