AC 211 Final Exam

Tangible Assets

Physical assets, such as real estate and automobiles, that can be held for either consumption or investment purposes.

Intangible Assets

Long-term assets (e.g., patents, trademarks, copyrights) that have no real physical form but do have value.

Basket Purchase

The total cost of a combined purchase, if land and building is allocated in proportion to their relative market values.

Amortization

For intangible assets, this is the systematic and rational allocation of the cost of an intangible asset over its useful life.

Book Value

The acquisition cost of an asset minus the accumulated depreciation. Also called Carrying Value, Net Book Value.

Capitalize

To record a cost as an asset, rather than as an expense.

Copyright

A form of protection provided to the original authors of literacy, musical, artistic, dramatic, and other works of authorship.

Declining-Balance Depreciation Method

Allocates the cost of an asset over its useful life based on a multiple of (often two times) the straight-line rate.

Depletion

Process of allocating a natural resource's cost over the period of its extraction or harvesting.

Depreciable Cost

The portion of the asset's cost that will be used up during its life. It is calculated as asset cost minus residual value and allocated to depreciation expense throughout the asset's life.

Depreciation

Process of allocating the cost of buildings, equipment, and other similar long-lived "productive" assets over their productive lives using a systematic and rational method of allocation.

Extraordinary Repairs

Infrequent expenditures that increase an asset's economic usefulness in the future and that are capitalized.

Franchise

A contractual right to sell certain products or services, use certain trademarks, or perform activities in a certain geographical region.

Goodwill

For accounting purposes, the excess of the purchase price of a business over the market value of the business's assets and liabilities.

Impairment

Occurs when the cash to be generated by an asset is estimated to be less than the carrying value of that asset and requires that the carrying value of the asset be written down.

Licensing Right

The limited permission to use property according to specific terms and conditions set out in a contract.

Long-Lived Assets

Tangible and intangible resources owned by a business and used in its operations over several years.

Net Assets

Shorthand term used to refer to assets minus liabilities.

Ordinary Repairs and Maintenance

Expenditures for the normal operating upkeep of long-lived assets, recorded as expenses.

Patent

A right to exclude others from making, using selling, or importing an invention.

Research and Development Expenses

Expenditures that may someday lead to patents, copyrights, or other intangible assets, but the uncertainty about their future benefits requires they be expensed.

Residual Value

Estimated amount to be recovered, minus the disposable costs, at the end of the company's estimated useful life of an asset.

Straight-Line Depreciation Method

Allocates the depreciable cost of an asset in equal periodic amounts over its useful life.

Technology Assets

Capitalized computer software and web development costs; an intangible asset.

Trademark

An exclusive legal right to use a special name, image, or slogan.

Units-of-Production Depreciation Method

Allocates the depreciable cost of an asset over its useful life based on its output during the period in relation to its total estimated output.

Useful Life

The expected service life of an asset to the present owner.

Accrued Liabilities

Liabilities for expenses that have been incurred but not paid at the end of the accounting period.

Amortization Schedule

A table showing the gradual reduction in balance over its life; in the context of loans and notes, this shows the payment of interest and repayment of principal on balances owed.

Contingent Liability

Potential liabilities that have arisen as a result of a past transaction or event; their ultimate outcome will not be known until a future event occurs or fails to occur.

Current Liabilities

Short-term obligations that will be paid in cash (or fulfilled with other current assets) within 12 months or the next operating cycle, whichever is longer.

Debt-to-Assets Ratio

Indicates financing risk by computing the proportion of total assets financed by debt, computed as total liabilities divided by total assets.

Discount

The amount by which a bond's issue price is less than its face value.

Effective-Interest Method of Amortization

Allocates the amount of bond premium or discount over each period of a bond's life in amounts corresponding to the bond's carrying value and market interest rate.

Face Value

The payment made when the bond matures; used to compute interest payments.

Issue Price

The amount of money that a lender pays (and the company receives) when a bond is issued.

Market Interest Rate

The rate of interest that investors demand from a bond. Also called yield, discount rate, or effective interest rate.

Maturity Date

The date on which the bonds are due to be paid in full.

Premium

The amount by which a bond's issue price exceeds its face value.

Present Value

The current value of an amount to be received in the future. It is calculated by discounting a future amount for a compound.

Stated Interest Rate

The rate stated on the face of the bond that is used to compute interest payments. Also called the coupon rate or contract rate.

Straight-Line Method of Amortization

Evenly allocates the amount of bond premium or discount over each period of a bond's life to adjust interest expense for differences between its stated interest rate and market interest rate.

Times Interest Earned Ratio

Divides net income before interest and taxes by interest expense to determine the extent to which earnings before taxes and financing costs are sufficient to cover interest incurred on debt.

Authorized Shares

The maximum number of shares of capital stock of a corporation that can be issued, as specified in the charter.

Common Stock

The basic voting stock issued by a corporation to stockholders.

Cumulative Dividend Preference

The preferred stock feature that requires current dividends not paid in full to accumulate for every year in which they are not paid. These cumulative paid amounts (called dividends in arrears) must be paid before any common dividends can be paid.

Current Dividend Preference

The feature of preferred stock that grants priority on preferred dividends over common dividends.

Declaration Date

The date on which the board of directors officially approves a dividend.

Dividends in Arrears

Dividends on cumulative preferred stock that have not been declared in prior years.

Issued Shares

Shares of stock that have been distributed by the corporation.

No-Par Value Stock

Capital stock that has no par value specified in the corporate charter.

Outstanding Shares

Shares that are currently held by stockholders (not the corporation itself).

Par Value

An insignificant value per share of capital stock specified in the charter.

Payment Date

The date on which a cash dividend is paid to the stockholders of record.

Preferred Stock

Stock that has specified rights over common stock.

Record Date

The date on which the corporation prepares the list of current stockholders as shown on its records; dividends can be paid only to the stockholders who own stock on that date.

Stock Dividend

A dividend that distributes additional shares of a corporation's own stock.

Stock Split

An increase in the total number of authorized shares by a specified ratio; does not affect retained earnings.

Treasury Stock

Issued Shares that have been reacquired by the company.

Budget

A detailed quantitative plan for acquiring and using financial and other resources over a specified forthcoming time period.

Budgeting Advantages

Define goal and objectives, communicate plans, coordinate activities, uncover potential bottlenecks, think about and plan for the future, means of allocating resources.

Responsibility Accounting

Managers should be held responsible for those items - and only those items - that they can actually control to a significant extent. Enables organizations to react quickly to deviations from their plans and to learn from feedback.

Master Budget

A number of separate but interdependent budgets that formally lay out the company's sales, production, and financial goals and that culminates in a cash budget, budgeted income statement, and budgeted balance sheet.

Sales Forecast

The amount of a product a company expects to sell during a specific period at a specified level of marketing activities.

Self-Imposed Budget

A budget that is prepared with the full cooperation and participation of managers at all levels.

Sales Budget

A detailed schedule showing the expected sales for the budget period.

Production Budget

A detailed plan showing the number of units that must be produced during a period in order to satisfy both sales and inventory needs.

Standards

Benchmarks or "norms" for measuring performance. In managerial accounting, two types of standards are commonly used.

Quantity Standard

Specify how much of an input should be used to make a product or provide a service. The quantity is the activity in the allocation base for predetermined overhead.

Price Standard

Specify how much should be paid for each unit of the input. The rate is the variable portion of the predetermined overhead rate.

Quantity Variance

Difference between actual quantity and standard quantity.

Price Variance

Difference between actual price and standard price.

Materials Price Variance Formula

MPV = (AQ x AP) - (AQ X SP)

AQ: Actual Quantity

AP: Actual Price

SP: Standard Price

The Purchasing Manager is responsible for this.

Materials Quantity Variance Formula

MQV = (AQ x SP) - (SQ x SP)

AQ: Actual Quantity

SP: Standard Price

SQ: Standard Quantity

The Production Manager is responsible for this.