ACC 101 Exam: Chapter 6

What are natural resources?

standing timber and underground deposits for oil, gas, and minerals

What are distinguishing charasteristics of natural resources?

physically extracted in operations

replaceable only by act of nature

Depletion is the _________ if the cost to an expense in a ______ and ________ manner over the resources useful lift

Allocation of the cost to expense in a rational and systematic manner

companies generally use the ___________ method

units-of-activity

depletion generally is a function of the units ______

extracted

intangible assets are

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

what are the two different lives of intangible assets

limited life or indefinite life

what are common types of intangibles

-patents

-copyrights

-franchises or licenses

-trademarks

-trade names

-goodwill

what happen to limited life intangibles

amortize to expense & credit asset account

what happen to indefinite life intangibles

no foreseeable limit on the time the asset is expected to provide cash flows & no amortization

amortization is to _____ what depreciation is to _______ and depletion is to ______

intangibles, plant assets, natural resources

patents give the exclusive right to manufacture, sell of otherwise control an invention for what period of time

20 years from the grant date

_______________ cost of purchasing a patent and amoritize over its 20 year life or its useful life, whichever is shorter

capitalize

______ any R&D (research and development) costs in developing a patent

expense

_____ are incurred successfully defending a patent are capitalized to the patent account

Legal Fees

what do copyrights give the owner the exclusive right to do?

reproduce and sell an artistic or published work

how long does a copyright last

extend for the life of the creator plus 70 years

what is the cost of a copyright

the cost of a copyright is the cost of acquiring and defending it

Copyrights are _____ to expense over useful life

amortized

what are trademarks and trade names

any word, phases, jingle or symbol that identifies a patricular enterprise or product

(Trademarks) legal protection for an indefinite number of_______ renewal periods

20 year

trademarks _____ acquisition cost and have no _______

capitalize; amortization

what does goodwill_____ exception management, desirable location, good customer relations, skilled employees, high quality products, ect.

includes

good will is only recorded when

an entire business is purchased

goodwill is recorded as the excess of

purchase price over the fair value of the net assets acquired

good will is ____ amortized

NOT

all R&D costs are ______ when incurred

expensed

the allocation of the cost of a natural resource to expense in a rational and systematic mater is ...

depletion

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

intangible assets

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

copyrights

a right to sell certain products or services or to use certain trademarks or trade names within a designated geographic area is..

franchise

cost incurred by a company that often leads to patents or new products. these costs must be expensed as incurred

research and development costs

usually companies combine plant and natural resources under________ in the balance sheet and ____ are shown separately

property, plant and equiptment; intangible assets

most exchanges have _______

commercial substance

________ if the future cash flows change as a result of the exchange

commercial substance

Plant assets are resources that have

physical substance (a definite size and shape),

are used in the operations of a business,

are not intended for sale to customers,

are expected to provide service to the company for a number of years, except for land.

_______ requires that companies record plat assets at cost

historical cost principle

land increases what account

increase the debit to the land account

land costs typically include

1. cash purchase price

2. closing costs such as title and attorney's fees

3. real estate brokers' commissions

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

land improvements are ____ made to the land

structural additions

cost includes all expenditures _________ ready for their intended use

necessary to make the improvements

examples of land improvements

driveways, parking lots, fences, landscaping, and underground sprinklers

land improvement have ____ useful lives

Limited

building purchase costs include...

purchase price, closing costs, attorneys fees, title insurance and real estate brokers commission

building construction costs

contract price plus payments for architects' fees, building permits, and excavation costs

equipement includes all costs incurred in acquiring the equiptment and _______

preparing it for use

Costs of equipment

cash purchase price, sales taxes, freight charges, insurance during transit paid by the purchaser and expenditures required in assembling installing and testing

______ are expenditures to maintain the operating efficiency and productive life of the unit

ordinary repairs

for ordinary repairs you ____ to maintenance and repairs expense

debit

ordinary repairs are referred to as

revenue expenditures

additions and improvements are costs incurred to _____ the operation efficiency, productive capacity or useful life of a plant asset

increase

for additions and improvements you ___ to the plant asset affected

debit

additions and improvements are also known as

capital expenditures

what is deprecation

the process of allocating to expose the cost of a plant asset over its useful (service) life in a rational and systematic manner

depreciation is a process of ____ not ____

process of cost allocation and not asset valuation

depreciation applies to land improvements, building and equiptment NOT

land

depreciation expense is reported on the income statements. accumulated depreciation is reported on the balance sheet as a deduction from plant assets

what are the tree deprecation methods

straight line method

units of activity method

declining balance method

straight line method the expense is ____ for each year

same amount

depreciable cost =

cost - salvage value

companies use the units-of activity method to estimate total units of activity to calculate ____

depreciation cost per units

units of activity method expense varies based on ______

Units of activity

units of activity method is depreciable cost is ______ less____

cost less salvage value

declining balance method is also called

accelerated method

under any method deprecaiation stops

when the assets book value equals the expected salvage value

Taxpayers must use the______ method of a special accelerated depreciation method called the modified accelerated cost recovery system (MARCS)

straight line

MARCS is _____under GAAP

not acceptable

what happens if a fully depreciated plant asset is still useful to the company

don't depreciate again- keep info the same

indifinite life has to be tested every year for

impairments

how to you get goodwill

by purchasing another company