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99 terms

Accounting 150 midterm 3

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2 characteristic of intangibles
lack physical existence, not financial instruments
when companies record purchased intangibles, they record
at cost
when company gets intangibles in exchange for something, they record
at fV
for internally created intangibles, companies usually only capitalize
direct costs
how do you amortize L-L intangibles
systematic charges
how to amortize I-L intangibles
you don't. test for impairment.
how do you treat purchase of LL intangible
capitalize
how do you treat purchase of IL intangible
capitalize
how do you treat internally created LL intangible
expense
how do you treat internally created IL intangible
expense
how do you test for LL intangible impairment
recoverability test then FV test
how do you test IL intangible impairment
FV test only
Examples of marketing-related intangibles
trademarks, Internet domain names, noncompetition agreements
what's the life of a trademark
indefinite, renewed every 10 years
Example of customer-related intangibles
customer list
example of artistic-related intangibles
copyrights
examples of contract-related intangibles
franchise/licensing agreements, construction permits, broadcast rights
treat franchise stuff as
operating expense
examples of technology-related intangibles
patents, trade secrets
how long does a patent last
20 years
2 kinds of patents
product, process
what do you do with cost of defending copyrights/patents
capitalize
is goodwill generated internally capitalized
no
when is goodwill recorded
when entire business is purchased
define goodwill
excess of cost over FV of NIA
what do you do when businesses are purchased for less than FV
record gain
do we amortize goodwill
no
fair value test
take fair value with goodwill subtract fair value without goodwill. result is the new goodwill amount.
only impair goodwill if
fv of company is less than bookvalue
how are impairments related to intangible assets reported in income
debit loss on impairment, credit the asset
do what to all costs related to the R&D area
capitalize
depreciation is
a means of cost allocation
2 reasons for retiring assets
physical factors, economic factors
when do you report changes in depreciation estimates
in the current and prospective periods. no change in the past.
why don't we use LCM for impairments
difficult to arrive at FV for PPE
impairment loss
difference between the carrying amount and its fair value
impairment losses go in what section
other expenses and losses in the income from continuing operations
how to restore impairment for asset held for use
no impairment restoration
how to report asset held for sale
report at LCM or NRV
do you depreciate or amortize assets held for use
yes
do you depreciate or amortize assets held for sale
no
2 features of natural resources
complete removal of asset, and the replacement of the asset only by an act of nature
4 factors of depletion base
acquisition cost, exploration costs, development costs, restoration costs
tangible equipment costs are or are not included in depletion base
are not
intangible development costs examples
tunnels, shafts, wells
intangible development costs are or are not included in the depletion base
are
depletion rate
total cost of natural resource - salvage value divided by number of units estimated in resource
journal entry for depletion
debit inventory, credit the resource
asset turnover ratio
net sales/average total assets
profit margin
net income/net sales
ROA
net income/average total assets
3 requirements for PPE
acquired for use in operations, long-term and depreciated, physical substance
do managers prefer to capitalize or expense
capitalize
what is historical cost
cost of obtaining the asset and bringing it to the location and condition necessary for its use
Removal of old buildings is in what cost
land
what do you do with cash discounts for valuing PPE
use the net method - record asset at discounted price
how to value PPE purchased on a lump sum basis
use the fair value of the individual compared to fair value of the total then use book value of acquisition cost to find the value of the individual item
if transaction has commercial substance recognize
gains and losses immediately
if transaction is a monetary transaction recognize
gains and losses immediately
if transaction has no commercial substance
recognize partial gain or full loss
definition of monetary transaction
cash transfer is greater or equal to 25% of total value
what do you do with additions to assets
capitalize and depreciate
what makes a transaction have commercial substance
if future cash flows change as a result of the transaction
how to calculate recognized partial gain for transaction without substance with boot
(cash received/ cash received + fair value of other assets received) x total gain
a gain or loss is really a correction of
net income
entries for disposition
debit cash, debit acc dep, credit machinery, and then credit/debit loss as necessary
examples of involuntary conversion
fire flood theft
assets acquired by the issuance of equity securities are valued based on
their fair values or the fair value of the equity securities, whichever is more reasonably determined
donated assets are recorded at
fair value
the fixed-asset turnover ratio provides
the amount of sales generated per dollar of fixed assets
fixed-asset turnover ratio
sales/fixed assets
in a nonmonetary exchange of equipment with commercial substance, a gain is recognized when
the fair value of the equipment surrendered exceeds the book value of the equipment given up
when an exchange lacks commercial substance, record new asset at
book value plus any cash - not fair value
4 criteria to capitalize lease
title transfer, bargain purchase option, if term of lease is >75% of economic life of the asset, if pv of minimum lease payments is >90% of FMV of asset
lessor wants
capital
lessee wants
operating
what do you do with rearrangement and reinstallation costs
capitalize the new costs and amortize them over expected remaining life. remove the old installation costs, if known.
how do you treat maintenance-type repairs:
expense immediately
interest costs associated with land expenditures (when associated building is being constructed) can be capitalized to
the cost of the building
should interest revenue be netted against interest costs when capitalizing interest costs?
no
additions
capitalize and depreciate
improvement =
better asset
replacement =
similar asset
improvements and replacements are capitalized if they
increase the future service potential of the asset
GAAP depreciation is not equal to tax depreciation. Difference in the timing of these deductions causes
book/tax differences
what do you do with an asset that can be used despite being fully depreciated
keep it on the books at historical cost - depreciation
Net identifiable assets
identifiable assets - identifiable liabilities
what do we do with goodwill when calculating NIA
ignore it because it is not identifiable
putting more into goodwill will lead to a better or worse ROA?
better
if we fail to record a gain on the acquisition of a company, we would be overvaluing our
assets
how to account for start-up/individual costs?
expense as incurred
how to account for advertising costs?
usually as incurred or the first time the advertising takes place
if PPE is purchased in exchange for stock, use what value of the stock
market
when disposing of PPE, remember to record depreciation
up until point of disposal
GAAP requires what for gains/losses on conversion
have to be recognized
if an asset is used despite being fully depreciated, what do we do with it?
keep it on the books at historical cost - accumulated depreciation
Is goodwill part of RNOA?
no
goodwill is what kind of item?
noncash
weighted average interest rate
total interest/total principal