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Accounting Ch. 8
Terms in this set (52)
Plant asset useful life
Ratio that estimates the productive life of an asset; equals the plant asset cost divided by depreciation expense.
plant assets (also called plant and equipment; property, plant and equipment (PP&E); or fixed assets)
tangible assets used in a company's operations that have a useful life of more than one accounting period; for many companies, these make up the single largest class of assets they own
two; operations; useful lives; more than one accounting
Plant assets are set apart from other assets by ________ important features. First, plant assets are used in _______________. The second important feature is that plant assets have ___________ __________ extending over _________ __________ ________ ______________ period.
four; costs; allocating; salvage; expenditures; disposal
__________ main issues in accounting for plant assets:
(1) computing the __________ of plant assets, (2) ______________ the costs of plant assets (less any _______________ amounts) against revenues for the periods they benefit, (3) accounting for _______________ such as repairs and improvements to plant assets, and (4) recording the ______________ of plant assets.
All normal and reasonable expenditures necessary to get an asset in place and ready for its intended use.
Assets that increase the benefits of land, have a limited useful life, and are depreciated; additions to land and have limited useful lives
Land is the earth's surface and has an ______________ (_______________) life.
lump-sum; lump-sum purchase; group, bulk, or basket purchase; relative market values
Plant assets sometimes are purchased as a group in a single transaction for a _________-_________ price. This transaction is called a ...; When this occurs, we allocate the cost of the purchase among the different types of assets acquired based on their ___________ ____________ __________, which is estimated by appraisal or by using the tax-assessed valuations of the assets.
Expense created by allocating the cost of plant and equipment to periods in which they are used; represents the expense of using the asset; the process of allocating the cost of a plant asset to expense in the accounting periods benefiting from its use
cost, salvage value, useful life
Factors that determine depreciations (3)
The _________ of a plant asset consists of all necessary and reasonable expenditures to acquire it and to prepare it for its intended use.
salvage value (also called residual value or scrap value)
Estimate of amount to be recovered at the end of an asset's useful life; an estimate of the asset's value at the end of its benefit period; this is the amount the owner expects to receive from disposing of the asset at the end of its benefit period
useful life (also called service life or limited life)
Length of time an asset will be productively used in the operations of a business; this of a plant asset is the length of time it is productively used in a company's operations; might not be as long as the asset's total productive life
Condition in which the capacity of plant assets is too small to meet the company's production demands; refers to the insufficient capacity of a company's plant assets to meet its demands
Condition in which, because of new inventions and improvements, a plant asset can no longer be used to produce goods or services with a competitive advantage; refers to the condition of a plant asset that is no longer useful in producing goods or services with a competitive advantage because of innovations
Method that allocates an equal portion of the depreciable cost of plant asset (cost minus salvage) to each accounting period in its useful life; charges the same amount of expense to each period of the asset's useful life
two; depreciable cost; cost to be depreciated; salvage; total; number; accounting
(Straight-line depreciation) A _______-step process is used. We first compute the ________________ _________ of the asset, also called the __________ ______ ______ ________________. It is computed by subtractive the asset's _____________ value from its ____________ cost. Second, depreciable cost is divided by the ________________ of ________________ periods in the asset's useful life.
Asset's acquisition costs less its accumulated depreciation (or depletion, or amortization); also sometimes used synonymously as the carrying value of an account; computed as the asset's total cost less its accumulated depreciation
straight-line depreciation rate; 100; useful
We also can compute the ______________-__________ __________________ ___________, defined as ________% divided by the number of periods in the asset's ____________ life.
Units-of-production depreciation; usage
Method that charges a varying amount to depreciation expense for each period of an asset's useful life depending on its usage; charges a varying amount to expense for each period of an asset's useful life depending on its ___________
two; depreciation per unit; units
A _______-step process is used to compute units-of-production depreciation. We first compute ________________ _______ _________ by subtracting the asset's salvage value from its total cost and then dividing by the total number of _________ expected to be produced during its useful life.
Accelerated depreciation method
Method that produces larger depreciation charges in the early years of an asset's life and smaller charges in its later years; yields larger depreciation expenses in the early years of an asset's life and less depreciation in later years
Method that determines depreciation charge for the period by multiplying a depreciation rate (often twice the straight-line rate) by the asset's beginning-period book value; the most common accelerated depreciation method; uses a depreciation rate that is a multiple of the straight-line rate and applies it to the asset's beginning-of-period book value
double; double-declining-balance (DDB)
A common depreciation rate for the declining-balance method is _____________ the straight-line rate. This is called the....
three; straight-line; double; multiplying; book value
(Double-declining balance (DDB)) This method is applied in ___________ steps:
1. Compute the asset's _____________-___________ depreciation rate
2. ____________ the straight-line rate
3. Compute depreciation by _______________ this rate by the asset's beginning-of-period ___________ __________
Modified Accelerated Cost Recovery System (MACRS)
Depreciation system required by federal income tax law; part of the US federal income tax law rules for depreciating assets; allows straight-line depreciation for some assets but requires accelerated depreciation for most kinds of assets
change in an accounting estimate
Change in an accounting estimate that results from new information, subsequent developments, or improved judgment that impacts current and future periods; revising an estimate of the useful life or salvage value of a plant asset; is reflected in current and future financial statements, not in prior statements
impairment; book value; market; permanent decline; impairment
Diminishment of an asset's value; users must remember that plant assets are reported on a balance sheet at their undepreciated costs (_________ ___________), not at fair (____________) values. An exception is when there is a _____________ _____________ in the fair value of an asset relative to its book value, called an asset ___________________
revenue expenditures (also called income statement expenditures)
Expenditures reported on the current income statement as an expense because they do not provide benefits in future periods; are additional costs of plant assets that do not materially increase the asset's life or productive capabilities
capital expenditures (also called balance sheet expenditures); asset; balance
Additional costs of plant assets that provide material benefits extending beyond the current period; are additional costs of plant assets that provide benefits extending beyond the current period; they are debited to ___________ accounts and reported on the ________________ sheet.
Accounting for betterments and extraordinary repairs is similar-both are treated as ______________ _________________
betterments (also called improvements)
Expenditures to make a plant asset more efficient or productive; often involves adding a component to an asset or replacing one of its old components with a better one and does not always increase an asset's useful life
Major repairs that extend the useful life of a plant asset beyond prior expectations; treated as a capital expenditure; expenditures extending the asset's useful life beyond its original estimate; are capital expenditures because they benefit future periods
A plant asset is ______________ when it is no longer useful to the company and it has no market value.
When accumulated depreciation equals the asset's cost, it is said to be _________ _______________ (zero book value).
sale price>book value=
sale price<book value=
natural resources (also called wasting assets)
Assets physically consumed when used; examples are timber, mineral deposits, and oil and gas fields
Process of allocating the cost of natural resources to periods when they are consumed and sold.
Natural resources are reported on the balance sheet at cost less _________________ ______________.
Long-term assets (resources) used to produce or sell products or services; usually lack physical form and have uncertain benefits; nonphysical assets (used in operations) that give companies long-term rights, privileges, or competitive advantages; examples are patents, copyrights, licenses, leaseholds, franchises, goodwill, and trademarks
Process of allocating the cost of an intangible asset to expense over its estimated useful life.
Asset life that is not limited by legal, regulatory, contractual, competitive, economic, or other factors; no legal, regulatory, contractual, competitive, economic, or other factors limit its useful life; should not be amortized
Only the __________________ method is used for amortizing intangibles unless the company can show that another method is preferred.
Diminishment of an asset's value.
Exclusive right granted to its owner to produce and sell an item or to use a process for 20 years.
Right giving the owner the exclusive privilege to publish and sell a musical, literary, or artistic work during the creator's life plus 70 years.
Privileges granted by a company or government to sell a product or service under specified conditions; rights that a company or government grants an entity to deliver a product or service under specified conditions
trademark or trade (brand) name
Symbol, name, phrase, or jingle identified with a company, product, or service.
Amount by which a company's (or a segment's) value exceeds the value of its individual assets less its liabilities.
Goodwill is not recorded unless an entire company or business segment is _______________.
Goodwill is recorded as an ____________, and it is ________ amortized.
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