accounting ch. 9 reporting and analyzing long-lived assets

accelerated-depreciation method

a depreciation method that produces higher depreciation expense in the early years than the straight-line approach

additions and improvements

costs incurred to increase the operating efficiency, productive capacity, or expected useful life of a plant asset

amortization

the process of allocating to expense the cost of an intangible asset

asset turnover

indicates how efficiently a company uses its assets to generate sales; calculated as net sales divided by average total assets

capital expenditures

expenditures that increase the company’s investment in plant assets

cash equivalent price

an amount equal to the fair value of the asset given up or the fair value of the asset received, whichever is more clearly determinable

copyright

an exclusive right granted by the federal government allowing the owner to reproduce and sell an artistic or published work

declining-balance method

a depreciation method that applies a constant rate to the declining book value of the asset and produces a decreasing annual depreciation expense over the asset’s useful life

depreciable cost

the cost of a plant asset less its salvage value

depreciation

the process of allocating to expense the cost of a plant asset over its useful life in a rational and systematic manner

franchise

a contractual arrangement under which the franchisor grants the franchisee the right to sell certain products, to perform specific services, or to use certain trademarks or trade names, usually within a designated geographic area

goodwill

the value of all favorable attributes that relate to a company that are not attributable to any other specific asset

impairment

a permanent decline in the fair value of an asset

intangible assets

rights, privileges, and competitive advantages that result from the ownership of long-lived assets that do not possess physical substance

lease

a contractual agreement allowing one party (the lessee) to use the asset of another party (the lessor) for a period of time at an agreed price

lessee

a party that has made contractual arrangements to use another party’s asset for a period at an agreed price

lessor

a party that has agreed contractually to let another party use its asset for a period at an agreed price

ordinary repairs

expenditures to maintain the operating efficiency and expected productive life of the asset

patent

an exclusive right issued by the U.S. Patent Office that enables the recipient to manufacture, sell, or otherwise control an invention for a period of 20 years from the date of the grant

plant assets

resources that have physical substance, are used in the operations of a business, and are not intended for sale to customers

research and development costs

expenditures that may lead to patents, copyrights, new processes, and new products; must be expensed as incurred

return on assets

a profitability measure that indicates the amount of net income generated by each dollar of assets; computed as net income divided by average total assets

revenue expenditures

expenditures that are immediately charged against revenues as an expense

straight-line method

a depreciation method in which companies expense an equal amount of depreciation for each year of the asset’s useful life

trademark (trade name)

a word, phrase, jingle, or symbol that distinguishes or identifies a particular enterprise or product

units-of-activity method

a depreciation method in which useful life is expressed in terms of the total units of production or use expected from the asset

Modified Accelerated Cost Recovery System (MACRS)

for tax purposes, taxpayers must use on their tax returns either the straight-line method or a special accelerated-depreciation method