Chapter 8 Terminology

Question 1

_____ are tangible assets used in a company’s operations that gave a useful life of more than one accounting period.

Answer 1

Plant assets

Question 2

_____ includes all expenditures necessary to get an asset in place and ready for us.

Answer 2

Cost

Question 3

Additions to land and have limited useful lives

Answer 3

Land improvements

Question 4

_______ is the process of allocating the cost of a plant asset to expense white is in use.

Answer 4

Depreciation

Question 5

An estimate of the assets value at the end of its useful life.

Answer 5

Salvage value.

Question 6

_______ of a plant asset is the length of time it is used in a company’s operations.

Answer 6

Useful life

Question 7

_____ is the inability of a plant asset to meet its demands.

Answer 7

Inadequacy

Question 8

____ is the process of becoming outdated and no longer used.

Answer 8

Obsolescence.

Question 9

________ charges the same amount to each period of the assets useful life. A two-step process is used.

Answer 9

Straight line-depreciation.

Question 10

The net balance sheet amount is the ________ and is the assets total cost minus accumulated depreciation.

Answer 10

Asset book value

Question 11

_______ charges a varying amount for each period depending on assets usage.

Answer 11

Units-of-production depreciation

Question 12

Units-of-production depreciation formula

Answer 12

Depreciation Expense = Unit Production Rate x Units Produced

Question 13

________ has more depreciation in the early years and less deprecation in the later years.

Answer 13

Accelerated depreciation method.

Question 14

The most common accelerated method is the ______, which uses a depreciation rate that is a multiple of the straight-line rate.

Answer 14

Declining-balance method

Question 15

Double-declining-balance depreciation formula

Answer 15

Double Declining Balance Method Formula = 2 X Cost of the asset X Depreciation rate

Double Declining Balance Formula = 2 X Cost of the asset/Useful Life.

Question 16

Modified accelerated cost recovery system (MACRS)

Answer 16

Allows straight-line depreciation for some assets but requires accelerated depreciation for most kinds of assets.

Question 17

Revising an estimate of the useful life or salvage life of a plant asset is called a _________ and only affects current and future financial statements.

Answer 17

Change in an accounting estimate

Question 18

Revised straight line depreciation formula

Answer 18

Book value - revised salvage value / revised remaining useful life.

Question 19

Costs that do not materially increase the plant assets life or capabilities.

Answer 19

Revenue expenditures

Question 20

Costs of plant assets that provide benefits for longer than the current period.

Answer 20

Capital expenditures

Question 21

______ are expenditures to keep an asset in good operating condition.

Answer 21

Ordinary repairs

Question 22

Expenditures that make a plant asset more efficient or productive.

Answer 22

Betterments or improvements

Question 23

Expenditures that extend the assets useful life beyond its original estimate.

Answer 23

Extraordinary repairs

Question 24

Assets that are physically consumed when used.

Answer 24

Natural resources.

Question 25

_______ is the process of allocating the cost of a natural resource to the period when it is consumed.

Answer 25

Depletion.

Question 26

Depletion formula

Answer 26

Step 1: Depletion base - Salvage value) ÷ Total units to be recovered = depletion per unit.

Step 2: depletion per unit x units extracted and sold in period.

Question 27

Non physical assets used in operations that give companies long-term rights or competitive advantages.

Answer 27

Intangible assets.

Question 28

If an intangible asset has a ______, it’s cost is expenses over its estimated useful life using _______.

Answer 28

Limited life; amortization.

Question 29

Of an intangible asset has an _______ - meaning that no legal, competitive, economic, or other facts limit its useful life- it is not amortized.

Answer 29

Indefinite life.

Question 30

An intangible asset that is not amortized is tested annually for __________.

Answer 30

Impairment

Question 31

A _______ is an exclusive right granted to its owner to manufacture and sell a patented item or to use a process for 20 years.

Answer 31

Patent.

Question 32

A ________ gives its owners the exclusive right to publish and sell a musical, literary, or artistic work during the life of the creator plus 70 years, although the useful life most is much shorter.

Answer 32

Copyright

Question 33

_______ and _______ are rights that a company or government grants an entity to sell a product or service under specified conditions.

Answer 33

Franchises and license

Question 34

A ______ is a symbol, name, phrase, or jingle identified with a company, product, or service.

Answer 34

Trademark.

Question 35

_______ is the amount by which a company’s value exceeds the value of its individual assets and liabilities.

Answer 35

Goodwill

Question 36

________ are expenditures to discover new products, new processes, or knowledge. GAAP does NOT include them as intangible assets.

Answer 36

Research and development costs.