U 8 FLASH

What are plant assets also known as?

Property, plant, and equipment.

What principle requires companies to record plant assets at cost?

The historical cost principle.

What are costs that must be expensed immediately called?

Revenue expenditures.

What are costs included in a plant asset account referred to as?

Capital expenditures.

What does depreciation allocate over an asset's useful life?

The cost of a plant asset.

Which three classes of plant assets does depreciation apply to?

Land improvements, buildings, and equipment.

What is land improvements defined as?

Structural additions with limited lives made to land.

What method is used for straight-line depreciation?

Companies expense an equal amount of depreciation each year.

What is the formula for calculating annual depreciation expense using the straight-line method?

(Cost of the plant asset - Salvage value) ÷ Estimated useful life.

What is the name of the accelerated depreciation method that uses a declining balance?

Double-declining-balance method.

How does the units-of-activity method express useful life?

In terms of the total units of production or use expected from the asset.

What must companies disclose in their financial statements regarding depreciation?

The choice of depreciation method.

What is impairment in accounting?

A permanent decline in the fair value of an asset.

What are the three ways companies can dispose of plant assets?

Sale, retirement, or exchange.

What are intangible assets?

Rights, privileges, and competitive advantages resulting from ownership of long-lived assets.

What is the process of allocating the cost of intangibles over their useful life called?

Amortization.

What does goodwill represent in accounting?

The value of all favorable attributes that relate to a company not attributable to any specific asset.

Which ratio indicates how efficiently a company uses its assets to generate sales?

Asset turnover.

What is Return on Assets calculated by?

Net income divided by average assets.

What does the profit margin ratio tell?

How effective a company is in turning its sales into income.

How can a company increase its return on assets?

By increasing profit margin or increasing asset turnover.