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Accounting Exam 4 Ch 9-13 Questions with Complete Solutions
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Accounting Exam 4 Ch 9-13 Questions with Complete Solutions
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Accounting Exam 4 Ch 9-13 Questionswith Complete Solutions
Long-Lived Assets - Answer-Tangible and intangible resources owned by a business
and used in its operations over several years.
Business assets acquired for use over one or more years.
Not intended for resale.
Examples of Long Lived Assets - Answer-The stores where Walmart sells merchandise.
Legal rights that restrict the use of the Under Armour logo.
Tangible Assets - Answer-Long-Lived Assets that have physical substance, which
simply means you can see, touch, or kick them.
Most common examples include land, buildings, machinery, vehicles, office equipment,
and furniture and fixtures.
Typically grouped into a single line item on the balance sheet called Property, Plant,
and Equipment.
AKA Fixed Assets.
Intangible Assets - Answer-Long-Lived assets that have special rights but no physical
substance.
The existence of most of these is indicated only by legal documents that describe their
rights.
Includes brand names, trademarks, licensing rights.
Accumulated Depreciation Reporting - Answer-Reported as a total for the entire tangible
assets category. Alternatively, it can be reported separately for each type of tangible
asset.
Three Key Accounting Decisions Related to Tangible Long-Lived Assets - Answer-1.)
Acquisition
2.) Use
3.) Disposal
Land Improvements - Answer-Include sidewalks, pavement, landscaping, fencing,
lighting, and sprinkler systems that are added to improve the usefulness of land. Differ
from land in that they deteriorate over time, whereas land is assumed to last forever.
,Construction in Progress - Answer-Includes the costs of constructing new buildings and
equipment. When construction is finished, these costs are moved from this account into
the building or equipment account to which they relate.
General Rule for Tangible Assets Under the Cost Principle - Answer-All reasonable and
necessary costs to acquire and prepare an asset for use should be recorded as a cost
of the asset.
Capitalized Costs - Answer-To record a cost as an asset, rather than an expense
Capitalizing Costs Effects - Answer-Increases Assets on Balance Sheet, and decreases
expenses on the income statement.
Costs That Should Be Capitalized (Land) - Answer--Purchase cost
-Legal fees
-Survey fees
-Title search fees
Costs That Should Be Capitalized (Equipment) - Answer--Purchase/ construction cost
-Sales taxes
-Transportation costs
-Installation costs
Costs That Should Be Capitalized (Buildings) - Answer--Purchase/ construction cost
-Legal fees
-Appraisal fees
-Architect fees
Capitalizing Costs for Land, Buildings, Equipment - Answer-If a company buys land, a
building, or a piece of used equipment and incurs demolition, renovation, or repair costs
before it can't be used, these additional costs are capitalized as a cost of the land,
building, or equipment. These costs are capitalized because they are needed to prepare
the asset for use.
Basket Purchase - Answer-When land, buildings, and equipment are purchased
together. When this occurs, the total cost is split among the assets in proportion to the
market value of the assets as a whole.
Necessary because they may be used over different periods.
Fixed Asset Costs and Other Costs - Answer-NOT ALL FIXED COSTS ARE
CAPITALIZED.
Other Costs That Are Expensed As Incurred include insurance for fixed assets in use,
interest on loans to purchase fixed assets, and ordinary repairs and maintenance.
,Two Types of Maintenance Costs Incurred During Use of Tangible Assets - Answer-1.)
Ordinary Repairs and Maintenance
2.) Extraordinary Repairs and Maintenance
Ordinary Repairs and Maintenance - Answer-Expenditures for the normal operating
upkeep of long-lived assets, recorded as expenses.
For routine maintenance.
Recurring, relatively small expenditures that do not directly increase an asset's
usefulness, so they are recorded as expenses in current period.
AKA revenue expenditures.
Extraordinary Repairs, Replacements, and Additions - Answer-Infrequent expenditures
that increase an asset's economic usefulness in the future and that are capitalized.
Occurs infrequently, involve large expenditures, and increase an asset's usefulness
through enhanced efficiency, capacity, or lifespan.
Examples include additions, major overhauls, complete reconditioning, and major
replacements and improvements, such as the replacement of the passenger train on a
rollercoaster.
AKA capital expenditures.
Depreciation - Answer-Process of allocating the cost of buildings, equipment, and other
similar long-lived "productive" assets over their productive lives using a systematic and
rational method of allocation.
Allocation of existing costs already recorded as long-lived asset.
The asset needs to be decreased each period, which creates an expense.
Depreciation Expense on Income Statement, Accumulated Depreciation on the Balance
Sheet.
Book (Or Carrying) Value - Answer-Acquisition cost of an asset less accumulated
depreciation.
AKA carrying value, net book value.
Most companies report a breakdown of these totals by class of asset (buildings,
equipment) in their financial statement notes.
Depreciation Calculations Are Based On: - Answer-1.) Asset cost
2.) Useful life
, 3.) Residual Value
Asset Cost - Answer-Includes all the asset's capitalized costs, including the purchase
cost, sales tax, legal fees, and other costs needed to acquire and prepare the asset for
use.
Useful Life - Answer-The expected service life of an asset to the present owner.
May be expressed in terms of years or units of capacity.
Land is the only tangible asset that is assumed to have an unlimited (indefinite) useful
life. Because of this, land is not depreciated.
Residual (Salvage) Value - Answer-Estimated amount to be recovered, less disposal
costs, at the end of a company's estimated useful life of an asset.
Considered when calculating depreciation because we want to leave a little of the
asset's cost in the accounts after we have finished depreciating it.
Basic Idea of Depreciation - Answer-To match the economic benefit that will be used up
(asset cost minus residual value) to the periods the asset is used to generate revenue
(useful life).
Depreciable Cost - Answer-The portion of the asset's cost that will be used up during its
life. It is calculated as asset cost-residual value, and allocated to depreciation expense
throughout the asset's life.
Depreciation Methods - Answer-1.) Straight-line
2.) Units-of-production
3.) Declining-balance
Straight-Line Depreciation Method - Answer-Allocates the depreciable cost of an asset
in equal periodic amounts over the course of its useful life.
(Cost-Residual Value) x 1/Useful Life=Depreciation Expense
Straight-Line Depreciation Method Suggests: - Answer-1.) Depreciation Expense is a
constant amount each year.
2.) Accumulated Depreciation increases by an equal amount each year.
3.) Book Value decreases by the same equal amount each year.
Units-of-Production Depreciation Method - Answer-Allocates the depreciable cost of an
asset over its useful life based on the output during the period in relation to its total
estimated output.
(Cost-Residual Value) x Actual Production This Period/Estimated Total Production=
Depreciation Expense
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