accounting 2001- chapter 9 (LSU)

plant assets are resources that have a physical ______ (a definite size and shape)

substance

plant assets are resources that are used in the ________ of a business

operations

plant assets are resources that are not intended for ______ to customers

resale

plant assets are resources that are expected to provide ______ to company for a number of years, except for land

service

what is different about land compared to buildings and equipment?

land doesn't depreciate

_______ _______ requires that a companies record plant assets at cost

cost principle

cost consists of all expenditures necessary to ______ an asset and make it ______ for its intended use (not just the purchase price)

acquire; ready

example: if you buy a fryer for $200 and it cost $50 to put it together then your total cost would be $250

these expenditures are called ________ ________

capital expenditures

to _______ means to add (debit) to an asset account

capitalize

cost is the _____ paid in a cash transaction or the cash equivalent price paid (when noncash assets given)

cash

cash equivalent price is the fair value of the asset ______ __ or fair value of the asset _______, whichever is more clearly determinable

given up or received

all necessary costs incurred in making land ready for its intended ____ increase the land account with a _____

use; debit

what do costs for land usually include

cash purchase price

legal costs such as title and attorney's fees

real estate brokers' fees

accrued property taxes and other liens on the land assumed by the purchaser

why doesn't land depreciate?

because land lasts forever

what are some examples of land improvements?

driveways, fences, parking lots, landscaping

land improvements include all expenditures necessary to make the improvements what? (these assets depreciate over their useful lives)

ready for their intended use

building costs are all costs related directly to _______ or _______ of a building

purchase or construction

what are some purchase costs for buildings?

purchase price, closing costs (attorney's fees, title insurance, etc.), real estate broker's commission, remodeling and replacing or repairing the roof, floors, electrical wiring, and plumbing

what are some construction costs for buildings?

contract price plus payments for architects' fees, building permits, and excavation costs; may also include interest incurred during construction

equipment includes all costs incurred in acquiring equipment and what?

preparing it for use

what do equipment costs typically include?

cash purchase price

sales tax

freight charges

insurance during transit paid by the purchaser

expenditures required in assembling, installing, and testing

lenard company purchases a delivery truck at a cash price of $22,000 related expenditures are sales tax $1,320, painting and lettering $500, motor vehicle license $80, and a three-year accident insurance policy $1,600 compute the cost if the delivery truck

in the cost of the delivery truck, you would include the cash price, sales tax, and lettering ONLY (think of it as this is what you have to buy from someone else before you can drive it off the sales lot, what someone else has to do for you before you can take the truck home just like if you bought a car and you wanted it personalized like seat warmers the car company would have to do that for you, everything else you can acquire on your own time) and vehicle license and prepaid insurance are debited on their own

ordinary repairs are expenditures to ______ the operating efficiency and productive life of the unit in which case you would debit repair _____

maintain; expense (like a car repair)

additions and improvements are costs incurred to ______ the operating efficiency, productive capacity, or useful life of a plant asset in which you would debit he plant ____ affected

increase; asset (example a building addition)

an alternative to buying an asset is _______

leasing

a lease is a _________ agreement in which the owner (the lessor) allows another party (the lessee) to use the asset for a period of time at an agreed price

contractual

there are advantages and disadvantages to leasing 2 advantages are:

1. reduced the risk of _______

2. little to no down _____

1. obsolescence

2. payment

depreciation is the process of allocating to ______ the cost of a plant asset over its useful (service) life in a rational and ________ manner

expense; systematic

true or false: depreciation applies to land improvements, buildings, equipment, and land

false: not to land!

depreciation is the process of ____ _______, not asset valuation

cost allocation

depreciable because the revenue-producing ability of asset will ______ over time

decrease

all expenditures necessary to acquire the asset and make it ready for intended use

cost

estimate of the expected life based on need for repair, service life, and vulnerability to obsolescence

useful life

estimate of the asset's value at the end of its useful life

salvage value

using the straight-line method, expense is the ____ amount for each year

SAME

what is the equation for the straight-line method

annual depreciation= cost-salvage value

----------------------

useful life

the declining-balance method is the _____ method

accelerated

declining-balance method is ______ annual depreciation expense over the asset's useful life

decreasing

double declining-balance rate is double the _______ rate

straight

in the declining-balance method, rate applied to the _____ value

book

what is the equation for the declining-balance method

beginning book value (cost - AD) * 2/useful life = annual expense

the units of activity method is suited to equipment whose activity can be ______ in units of output, miles driven, or hours in use

measured

the units-of-activity method calculate depreciation cost per ____

unit

in the units-of-activity method, _______ varies based on units of activity

depreciation

in the units-of-activity method, depreciable cost is cost less _____ value

salvage

each method is acceptable because each recognizes the _______ in service potential of the asset in a ______ and systematic manner

decrease; rational

companies must disclose the method of depreciation in use for ____ purposes; MACRS is a tax method that is commonly used

tax

revising periodic depreciation is accounted for in the period of ______ and future periods

change

revising periodic depreciation is not handled ________________

retrospectively

revising periodic depreciation is not considered an _____

error

impairments are a permanent decline in the ____ ______ of an asset

fair value

in impairments, the company writes the asset ______ to its new fair value during the year in which the decline in value occurs

down

in what 3 ways do companies dispose of a plant asset?

retirement, sale, or exchange

when disposing, no matter the method, the _____ value must be determined; recall that this is ____ less _____ (the net book value of the asset on the balance sheet)

BOOK; cost- accumulated depreciation

________ should be updated until the disposal date

depreciation

when selling plant assets, compare the book value with the _____ received from the sale

proceeds

when selling plant assets, if the proceeds exceed the book value, a _____ on disposal occurs

gain

when selling plant assets, if proceeds are less than the book value, a _____ on disposal occurs

loss

when a plant asset is retired, no ____ is received

cash

when retiring a plant asset, decrease (debit) _______ for the full amount of depreciation taken over the life of the asset

accumulated depreciation

when retiring a plant asset, decrease (credit) the asset account for the original ____ of the asset

cost

intangible assets are rights, privileges, and competitive advantages that result from ownership of long-lived assets that do not possess ______ substance

limited life or an ______ life

physical; indefinite

what are the common types of intangibles

patents, copyrights, franchises, trademarks, and goodwill

limited life intangibles;

amortize to _____

credit ______ account or accumulated amortization

expense; intangible

indefinite life intangibles:

no foreseeable limit on time the asset is expected to provide _____ _____

no ______________

cash flows; amortization

true or false: patents are exclusive rights to manufacture, sell, or otherwise control an invention for a period of 20 years from the date of the grant

true

capitalize costs of purchasing a patent and amortize over its ______ life or its useful life, whichever is shorter

useful

______ any R&D costs in developing a patent; legal fees incurred successfully defending a patent are capitalized to patent

expense

research and development costs are _______ that may lead to patents, copyrights, and new products

expenditures

all R & D costs are _____ when incurred

expensed

______ give the owner the exclusive right to sell an artistic or published work; granted for the life of the creator plus 70 years

copyrights

the cost of a copyright is the cost of _____ and ______

acquiring and defending

copyrights are amortized to expense over ______ life

useful

__________ are word, phrase, jingle, or symbol that identifies a particular enterprise or product (wheaties, monopoly, kleenex, coca-cola, etc.)

trademarks

for trademarks, legal protection for ______ number of 20 year renewal periods

indefinite

trademarks: _______ acquisition costs and there's no _______

capitalize; amortization

_______ and ________ are contractual arrangements between a franchisor and a franchise

examples: dunkin' donuts, papa johns, subway, UPS store, anytime fitness, and sport clips

franchises and licenses

franchise (or license) with a _______ life should be amortized over the life of a franchise

limited

franchises with an indefinite life should be carried at _____ and not __________

cost; amortizing

required annual payments on franchises are _____________ expenses

operating

___________ includes exceptional management, desirable location, good customer relations, skilled employees, high-quality products, etc.

goodwill

goodwill is only recorded when an entire business is _______

purchased

goodwill is recorded as the ______ of purchase price over the FMV (fair market value) of the identifiable net assets _____

excess; acquired

typical balance sheets show plant assets under the title ____________ and ____________ in a separate section

property, plants and equipment; intangibles

fully depreciated plant assets should remain on the balance sheet until the asset is ______

disposed

intangibles do not typically use a _____ asset account like ________ ____________; instead, amortization directly reduces the intangible

contra; accumulated depreciation

notes should disclose the major _____ of assets (like land, building, equipment) and balance of accumulated depreciation; they should also describe __________ methods and amortization methods (for intangibles)

types; depreciation