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Flashcards in Exam 3 Deck (51):
1

Property, plant, and equipment

a separate category under assets on a classified balance sheet

2

capital expenditure

costs ordinary and necessary to get items in place for their intended uses, included in the cost of the asset, counts if service life is extended

3

land costs

include the cost of the land, title fees, legal fees, survey costs, demolition of old structure, and zoning fees, and preparation costs

4

land improvements (asset)

include the costs of parking lots, sidewalks, landscaping, irrigation systems, and similar expenditures (listed separate from land)

5

Lump-sum aquisitions

a company purchases a facility with land, buildings, and equipment (the purchase price must be allocated to the individual components

6

depreciation

a process of allocation, not valuation. asset costs are spread across the periods used (service life)

7

Methods to record depreciation

straight-line, units of output, double declining balance

8

cost

the dollar amount assigned to a particular asset

9

service life

the useful life of an asset to an enterprise

10

salvage value (residual value)

the dollar amount expected to be realized when an asset's service life ends

11

book value

the balance sheet amount that reveal the cost minus the accumulated depreciation

12

straight line (SL) depreciation

(cost-salvage value)/service life

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fractional periods (SL)

if assets are not acquired at the beginning of an accounting period, depreciation must be calculated for a partial period (using straight-line, the amount is simply a fraction of the annual amount

14

units of output

the depreciable base is allocated over the units of output
(cost - salvage value)x(units used/units of useful life)

15

double declining balance

one of several accelerated depreciation methods
200% of the straight line rate is multiplied by the remaining book value of an asset determine depreciation

16

double declining calculation

(book value)x(2/service life)

17

Modified accelerated cost recovery system (MACRS)

generally permits more rapid recovery of asset costs than GAAP

18

equipment leases

with a lease agreement, the lessee pays money to the lessor for the right to use an asset for a stated period of time

19

capital leases

the "risks and rewards" of ownership are effectively transferred to the lessee

20

operating leases

leases that do not meet at least one of the capital lease conditions

21

restoration of asset

restores an asset to its original condition, reduces accumulated depreciation instead of increasing the cost of the asset

22

disposal of PP&E - Abandon

elimination of the cost of the asset from the books, removal of related accumulated depreciation, potentially recording a loss

23

disposal of PP&E - sell

includes the proceeds from the sale, may report a loss or gain

24

natural resources

initially recorded at their direct cost plus related items like legal fees, surveying costs, and exploration and development costs, costs basis is allocated over the periods benefited through a process known as depletion

25

depletion calculations

the costs of a natural resource is divided the estimated units in the resource deposit (result in depletion per unit)

26

intangibles

lack physical existence, but still contribute to the earnings capability of a company (patents copyrights, trademarks, brands, franchises, etc.), when purchased, the cost is recorded as an asset, if it has an identifiable economic life it is amortized (amortization credits asset account directly)

27

patents

give owners exclusive rights to use or manufacture a particular product

28

copyrights

provide their owners with the exclusive right to produce a sell an artistic or published work

29

franchises

giver their owners the right to manufacture or sell certain products or perform certain services on an exclusive or semi-exclusive basis

30

good will

unique intangible asset that arises out of business acquisition. reflects the excess of the cost of an acquired entity over the net of the amount assigned to assets acquired and liabilities assumed

31

long term notes

often "term loans", where "interest only" is paid during the period w/ balance due at maturity

32

other types of notes

loans may require level payments over their terms
common in real estate financing
payment computation requires future value and present value calculations

33

future value

amount to which an interest earning amount should grow over a time period

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simple interest

does not allow accumulated interest

35

compound interest

investment grows with accumulated interest & earning interest on previously accrued interest

36

compound interest equation

(1 + i)^n
this calculation shows how much $1 will grow to after "n" periods at "i" interest rater per period

37

present value

how much a dollar to be received in the future is worth today

38

present value equation for lump sum deposit

1/(1+i)^n

39

present value of annuity

present values of streams of payments can also be calculated

40

annuities

streams of level payments occurring on regular intervals, can be calculated by summing the future value amount associated with each individual payment

41

note payments

many loans have level periodic payments covering principal and interest (loan amount = payments X annuity present value factor)

42

bonds payable

with a bond payable, a borrower splits a large loan into many small units

43

secured bonds

provide specific assets as collateral to guarantee payment

44

debenture bonds

lack collateral; payment is only assured by faith and creditworthiness of the issuers

45

convertible bonds

enable the holder to exchange the bond for the predefined number of stock shares

46

callable bonds

a company has the option of buying back the debt at a prearranged price before it

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nonredeemable bonds

cannot be paid off earlier

48

accounting for bonds payable

a bond payable is a blend of an annuity (interest) and lump sum payment (face). the amount an investor will pay for a bond requires present value computations

49

par bonds

state rate of interest is equal to the market rate of interest, investors will pay a price equal to the bond face value

50

premium bonds

stated interest rate is higher than the market interest rate, investors will be wiling to pay a higher price for the higher interest payments
premium is known as an "adjunct" account

51

discount bonds

stated interest rate is lower than the market interest rate, investors will demand a lower price to compensate for the lower interest payments