Financial Accounting: Long-Term Assets, Liabilities, and Stockholders' Equity

Comprehensive vocabulary flashcards covering Chapter 7 (Long-Term Assets), Chapter 8 (Current and Long-Term Liabilities), and Chapter 10 (Stockholders' Equity).

Tangible Assets

Long-term assets that possess physical substance and can be physically touched, such as buildings, land, equipment, and natural resources.

Intangible Assets

Long-term operational assets that lack physical substance, including patents, copyrights, trademarks, franchises, and goodwill.

Land Improvements

Additional structural enhancements made to land—such as parking lots, sidewalks, driveways, and sprinklers—that have limited useful lives and must be recorded in a separate account rather than capitalized into the land account itself.

Basket Purchase

The acquisition of multiple long-term assets simultaneously for a single lump-sum purchase price, requiring the total cost to be allocated across individual accounts based on their relative estimated fair values.

Goodwill

An intangible asset recorded only when acquiring another business, representing the excess of the purchase price over the fair value of identifiable net assets ($\text{assets} - \text{liabilities}$); it cannot be internally generated.

Service Life

The estimated length of time or units of activity that a company expects to utilize an asset before disposal, distinct from the total physical life of the asset.

Residual (Salvage) Value

The estimated dollar amount that a company expects to receive from the disposal of an asset at the end of its service life.

Straight-Line Depreciation

A depreciation method allocating an identical expense amount to each full period over an asset's service life, computed as: $\text{Depreciation Expense} = \frac{\text{Asset's Cost} - \text{Residual Value}}{\text{Service Life}}$.

Double-Declining Balance Depreciation

An accelerated depreciation method calculating expense by multiplying beginning book value by twice the straight-line rate ($\text{Beginning Book Value} \times \frac{2}{\text{Service Life}}$), without subtracting residual value initially, but never depreciating below residual value.

Activity-Based Depreciation

A depreciation method allocating cost based on actual asset usage rather than time elapsed: $\text{Depreciation Rate per Unit} = \frac{\text{Cost} - \text{Residual Value}}{\text{Total Expected Activity}}$, which is immune to partial-year adjustments.

Amortization

The systematic allocation of the acquisition cost of finite-lived intangible assets over their useful life, typically recorded using the straight-line method and credited directly to the asset account rather than a contra-asset account.

Book Value

The net recorded value of a long-term asset appearing on the balance sheet, calculated as: $\text{Original Cost} - \text{Accumulated Depreciation}$.

Two-Step Impairment Test

The procedure for assessing PP&E impairment: Step 1 tests whether estimated future cash flows are less than book value; if yes, Step 2 records an impairment loss equal to book value in excess of fair value.

Current Liabilities

Debts and obligations expected to be satisfied within one year or within the normal operating cycle, whichever is longer, from the balance sheet date.

Long-Term Liabilities

Obligations that are not due to be paid within one year or the operating cycle, whichever is longer, from the balance sheet date.

Current Maturities of Long-Term Debt

The portion of a long-term debt instrument's principal that is due to be paid within the upcoming operating year, reported under current liabilities rather than long-term liabilities.

Deferred (Unearned) Revenue

A liability arising when a company receives cash from a customer in advance of providing the promised goods or performing the services.

FICA Taxes

Payroll taxes levied under the Federal Insurance Contributions Act for Social Security and Medicare at a combined rate of $7.65\%$, paid by the employee through withholding and matched by the employer.

Fringe Benefits

Non-wage compensation provided by an employer on behalf of employees, including employer contributions toward health, dental, disability, and life insurance premiums, as well as retirement or savings plans.

Notes Payable Interest Formula

The equation used to compute accrued interest on formal debt obligations: $\text{Interest Expense} = \text{Face Value} \times \text{Annual Interest Rate} \times \text{Fraction of the Year}$.

Contingent Liability

A potential obligation arising from past events whose outcome depends on the occurrence or nonoccurrence of one or more uncertain future events.

Contingent Liability Accounting Rules

Reporting requirements based on outcome probability: accrued as a liability and disclosed if probable and reasonably estimable; disclosed in notes only if reasonably possible or if probable but not estimable; no disclosure needed if remote.

Contingent Gain

A potential gain dependent on uncertain future outcomes (e.g., winning an ongoing lawsuit) that is never recognized or recorded until realized, following the principle of conservatism.

Paid-in Capital

The total amount of stockholders' equity that investors have contributed to the corporation in exchange for stock, encompassing common stock, preferred stock, and additional paid-in capital.

Retained Earnings

The cumulative net income retained by the corporation since its inception rather than distributed as dividends, calculated as: $\text{Ending Retained Earnings} = \text{Beginning Retained Earnings} + \text{Net Income} - \text{Dividends}$.

Treasury Stock

A corporation's own capital stock that was issued to investors and later repurchased by the company; it is reported as a contra-stockholders' equity account that reduces total equity.

Authorized Stock Structure

The total volume of shares allowed by corporate charter, divided into unissued shares and issued shares (which comprise outstanding shares held by external stockholders and treasury shares held by the company).

Outstanding Stock

The number of issued shares of corporate stock currently held by outside investors and stockholders, calculated as: $\text{Issued Shares} - \text{Treasury Shares}$.

Par Value

The arbitrary legal capital assigned to each share of stock in the corporate charter when established; it has no relationship to market value.

Additional Paid-in Capital

An equity account representing the amount contributed by shareholders in excess of the stock's stated par value upon issuance or generated from treasury stock resale transactions above cost.

Preferred Stock

A class of corporate ownership that generally lacks voting rights but holds priority over common stock regarding dividend payments and distribution of remaining assets upon liquidation.

Common Stock

The standard voting equity ownership in a corporation, maintaining residual claims on corporate profits and being last in line for asset distributions if the firm fails.

Dividend Declaration Date

The date on which the board of directors formally resolves and announces an upcoming cash dividend distribution, establishing a legal liability for the corporation.

Dividend Record Date

The date established by the board of directors that determines which specific stockholders are officially registered to receive declared dividends; requires no journal entry.

Dividend Payment Date

The specific date on which the dividend cash disbursement is remitted to registered stockholders, settling the dividends payable liability.

Accumulated Deficit

A negative balance in Retained Earnings resulting from cumulative net losses exceeding cumulative profits, presenting as a debit balance in stockholders' equity.

Earnings Per Share (EPS)

A financial metric assessing income generated per unit of residual ownership, computed as: $\text{Earnings Per Share} = \frac{\text{Net Income} - \text{Dividends on Preferred Stock}}{\text{Average Shares of Common Stock Outstanding}}$.