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ACT 230 - Principles of Accounting > Chapter 9: Accounting for Long-Lived and Intangible Assets > Flashcards

Chapter 9: Accounting for Long-Lived and Intangible Assets Flashcards

1
Q

What is the expanded accounting equation?

A

Assets = liabilities + common stock - dividends + revenue - expenses

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2
Q

What are the three categories of long-lived assets?

A

Plant assets, intangible assets, and natural resources

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3
Q

What are plant assets?

A

Assets that refer to a company’s property plant and equipment

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4
Q

What are examples of plant assets?

A

Land, buildings, equipments, furniture and fixtures

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5
Q

Define intangible assets

A

Economic resources that benefit the company, but lack physical substance

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6
Q

What are examples of intangible assets?

A

Copyrights, trademarks, patents, franchises

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7
Q

Define natural resources

A

Resources supplied by nature

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8
Q

What are examples of natural resources?

A

Timber stands, mineral deposits, oil and gas deposits

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9
Q

What are 4 accounting issues for long-lived assets?

A
  1. Account for the acquisition cost
  2. Expense the asset’s cost over time
  3. Determine the treatment of future expenditures on the original assets
  4. Account for the disposal of assets
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10
Q

What 2 things are needed to calculate acquisition cost?

A

Purchase price components, related expenditures

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11
Q

What makes up purchase price components?

A

Gross invoice price - cash discount + sales tax

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12
Q

What makes up related expenditures?

A

Freight charges + installation costs + testing of installed machine

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13
Q

What 5 things are needed to bring the land into condition for use?

A
  1. Property taxes on purchase
  2. Insurance on purchase
  3. Legal fees on purchase
  4. Fees to remove old buildings
  5. Special assessments
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14
Q

Define depreciation

A

An asset’s useful life, which may differ from its physical life

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15
Q

3 methods to calculating depreciation expense

A
  1. Straight line
  2. Declining balance
  3. Units-of-production
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16
Q

How do you calculate annual depreciation using the straight-line method?

A

Annual depreciation = acquisition cost - salvage value / estimated useful life

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17
Q

An example of using the annual depreciation equation for the straight-line method is.

Assume equipment costs $5,000 with a 3 year useful life and a $500 salvage value

A

$5,000 - $500 / 3 years = $1,500

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18
Q

How to record depreciation expense for the year using straight-line method. Say the depreciation value is $1,500

A

Debit Depreciation expense
Credit Accumulated depreciation

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19
Q

How to calculate depreciation per unit using units-of-production method

A

Depreciation per unit = acquisition cost - salvage value / total estimated units of production

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20
Q

Define impaired

A

When the value of a plant asset suddenly falls so severely that its future cash flows are estimated to be less than its current book value, the asset is deemed to be impaired and an impairment loss is then recorded.

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21
Q

How do you record impairment loss?

A

Debit impairment loss
Credit accumulated depreciation

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22
Q

What are the two types of expenditures?

A

Revenue expenditures and betterments

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23
Q

What are disposals?

A

Can be sales, retirements, or exchanges

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24
Q

To record disposal…

A

Remove asset costs
Remove accumulated depreciation
Record proceeds
Record any gain or loss

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25
Q

How to calculate current assets

A

cash and cash equivalents + accounts receivable + inventories + prepaid expense and other current assets

26
Q

How to calculate total assets

A

current assets + property and equipment - depreciation + construction in progress + timber and timberlands a cost - depletion + mineral and mineral rights - depletion + goodwill + other assets

27
Q

What is the equation for return on assets?

A

Return on assets = net income / average total assets

28
Q

Define the rate of return on the company’s asset.

A

A commonly used measure of the overall company health

29
Q

Define asset turnover

A

Evaluates a company’s effective use of its assets

30
Q

What is the equation of asset turnover

A

Asset turnover = net sales / average total assets

31
Q

What account is supplies?

A

Assets

32
Q

What account is cash?

A

Assets

33
Q

What account is accounts receivable?

A

Assets

34
Q

What account is prepaid rent expense?

A

Assets

35
Q

What accounts is prepaid insurance expense?

A

Asset

36
Q

What account is unearned revenue?

A

Unearned revenue

37
Q

What account is the equipment?

A

Assets

38
Q

What account do owned buildings fall under?

A

Asset

39
Q

What accounts do building improvements fall under?

A

Asset

40
Q

What account does land fall under?

A

Asset

41
Q

What account do land improvements (sidewalks, landscaping, etc.) fall under?

A

Assets

42
Q

What four things are needed to calculate depreciation expense?

A
  1. The cost of the asset
  2. The useful life
  3. The salvage value
  4. The depreciation method selected
43
Q

True/False: Land is a depreciable asset.

A

False. It doesn’t have a useful life.

Only exception is when land is depleted of it’s natural resources

44
Q

How to calculate acquisition cost?

A

Acquition cost = Invoice + sales tax + delivery fee + testing fee

45
Q

How do you journal acquisition cost?

A

Debit equipment
Credit cash

46
Q

Who decides useful life?

A

Managment

47
Q

Who decides salvage value?

A

Management

48
Q

How do you calculate depreciation cost?

A

Depreciation cost = acqusition cost - salvage value

Ex:
Acquisition cost (22,000)
Salvage value (2,000)
=
Depreciation cost = 20,000

49
Q

What account is depreciation expense?

A

Expense account (Stockholders equitable)

50
Q

Does an expense account usually have a credit or debit value?

A

Debit

51
Q

What type of account is depreciation expense?

A

Asset (contra-asset)

52
Q

When there is an increase in accumulated depreciation expense, is it debited or credited?

A

Credited

53
Q

Does accumulated depreciation usually have a credit or debit value?

A

Credit

54
Q

What balance does equipment usually have?

A

Debit balance

55
Q

When depreciation expense is debited, which account is credited?

A

Accumulation expense

56
Q

T/F: You can only depreciate up to the acquisition cost

A

True

57
Q

How to calculate depreciable cost per unit

A

Depreciable cost per units = acquisition cost / total amount of units produced

Ex:
Acquisiton cost: $10,000
Units produced (lifetime): $200,000
Depreciable cost per unit = $10,000 / $200,000
Depreciable cost per unit = $0.05

58
Q

How do you calculate depreciation expense using the unit-of-production method?

A

Units produced x depreciation cost per unit

Ex:
Units produced: 80,000
Depreciation cost per unit: $0.05

Depreciation expense: units produced x depreciation cost per unit

Depreciation expense: 80,000 x 0.05 = 4,000

Depreciation expense = $4,000

59
Q

How is the annual depreciation rate calculated using the declining-balance method?

A

Straight line depreciation rate x 2

Ex:
Straight line depreciation rate = 20
x 2

Declining-balance method = 20 x 2

Declining-balance method = 40

60
Q

How to calculate book value

A

Equipment - accumulated depreciation

Example:
Equipment: 11,000
Accumulated depreciation: 1,000

Book value = 11,000 - 1,000
Book value = 10,000

ACT 230 - Principles of Accounting (8 decks)

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