EXAM 3 ACCT 2810 Miller

fixed asset

a long-term, tangible asset that a business owns and uses to operate rather than selling it to customers

depreciation

spreading the cost of a fixed asset over the number of years it’s expected to be used

partial-year depreciation

depreciation on a fixed asset for less than full accounting year because asset was purchased/put to use during the year

capital expenditures

money spent by businesses to purchase, improve, or extend the life of long-term assets

revenue expenditures

expenses incurred for the daily running and maintenance of a business

disposal of asset

process of removing a fixed asset from a business’s records by selling, scrapping, or donating it

depletion

process of transferring cost of natural resources to an expense account

intangible asset

non-physical assets owned by a business that have value

patent

a legal right granted to an inventor that prevents others from making, using, or selling their invention without permission for a specific period

copyright

legal right that protects original creative works from being copied or used without permission

trademark

name, term, or symbol used to identify a business and its products

goodwill

intangible asset representing the value of a business’s reputation, brand name, and other advantages when purchased

Net Book Value (NBV)

Cost - Accumulated Depreciation

Straight-Line Depreciation

(Cost - Salvage Value) / Useful Life

Double-Declining Balance Depreciation (DDB)

STEP 1

1/useful life

Double-Declining Balance Depreciation (DDB)

STEP 2

(1/useful life) x 2

Double-Declining Balance Depreciation (DDB)

STEP 3

beginning book value x declining rate

ex. $30,000 × 40% = $12,000.00

Partial Year Depreciation

((cost - salvage value) / useful life) x amount of time used

ex. ((24000-4000)/5) x (4/12) = 1,333.333

gain on disposal

selling price > book value

loss on disposal

selling price < book value

depletion rate

cost of resource / estimated total units of resource

depletion expense

depletion rate x quantity extracted

example of depletion rate

$400,000/1000000 tons = $0.40/ton

example of depletion expense

$0.40/ton x 90,000 tons =$36,000

debt financing

obtaining money through borrowing

equity financing

obtaining money through investments from owners

liability

debt/obligation owed

current liability

liability expected to be paid within one year or operating cycle

long-term liability

expected to be paid in over a year

contingent liabilities

depends on future event

accounts payable

amounts owed made on account

accrued liability

obligations to pay current assets in the future

note payable

formal written agreements to repay borrowed money

bond payable

long-term borrowing that requires interest payment and repayment of principal

bond discount

market rate > contract rate

bond premium

market rate < contract rate

dividends

distribution of corporate earnings to shareholders (cash, stock)

stock split

increases # of shares, decreases oar value per share

calculating interest

amount x interest x time

earnings per share

(net income - preferred dividends) / # of common shares

debt ratio

liabilities / assets x 100