Chapter 7 Vocab

Question 1

Accelerated depreciation method

Answer 1

Allocates a higher depreciation in the earlier years of the asset’s life and lower depreciation in later years

Question 2

Accumulated Depreciation

Answer 2

A contra asset account representing the total depreciation taken to date

Question 3

Activity-based method

Answer 3

Allocates an asset’s cost based on its use

Question 4

Addition

Answer 4

Occurs when a new major component is added to an existing asset

Question 5

Amortization

Answer 5

Allocation of the cost of an intangible asset over its service life

Question 6

Asset turnover

Answer 6

Net sales divided by average total assets, which measures the sales per dollar of assets invested

Question 7

Basket purchase

Answer 7

Purchase of more than one asset at the same time for one purchase price

Question 8

Big bath

Answer 8

Recording all losses in one year to make a bad year even worse

Question 9

Book value

Answer 9

An asset’s original cost less accumulated depreciation

Question 10

Capitalize

Answer 10

Record an expenditure as an asset

Question 11

Copyright

Answer 11

An exclusive right of protection given to the creator of a published work such as a song, film, painting, photograph, book, or computer software

Question 12

Declining-balance method

Answer 12

An accelerated depreciation method that records more depreciation in earlier years and less depreciation in later years

Question 13

Depreciation

Answer 13

Allocating the cost of a long-term asset to an expense over its service life

Question 14

Depreciation method

Answer 14

The pattern in which the asset’s depreciable cost (original cost minus residual value) is allocated over time

Question 15

Franchise

Answer 15

Local outlets that pay for the exclusive right to use the franchisor company’s name and to sell its products within a specified geographical area

Question 16

Goodwill

Answer 16

Goodwill equals the purchase price less the fair value of the net assets acquired

Question 17

Impairment

Answer 17

Occurs when the future cash flows (future benefits) generated for a long-term asset fall below its book value (cost minus accumulated depreciation)

Question 18

Improvement

Answer 18

The cost of replacing a major component of an asset

Question 19

Intangible assets

Answer 19

Long-term assets that lack physical substance and whose existence is often based on a legal contract

Question 20

Land improvements

Answer 20

Improvements to land such as paving, lighting, and landscaping that, unlike land itself, are subject to depreciation

Question 21

Material

Answer 21

Large enough to influence a decision

Question 22

Natural resources

Answer 22

Assets like oil, natural gas, and timber that we can physically use up or deplete

Question 23

Patent

Answer 23

An exclusive right to manufacture a product or to use a process

Question 24

Profit margin

Answer 24

Net income divided by net sales; indicates the earnings per dollar of sales

Question 25

Repairs and maintenance

Answer 25

These are expenses that maintain a given level of benefits in the period incurred

Question 26

Residual value

Answer 26

The amount the company expects to receive from selling the asset at the end of its service life; also referred to as salvage value

Question 27

Return on assets

Answer 27

Net income divided by average total assets; measures the amount of net income generated for each dollar invested in assets

Question 28

Service life

Answer 28

How long the company expects to receive benefits from the asset before disposing of it; also referred to as useful life

Question 29

Straight-line method

Answer 29

Allocates an equal amount of depreciation to each year of the asset's service life

Question 30

Trademark

Answer 30

A word, slogan, or symbol that distinctively identifies a company, product, or service