# Shared Flashcard Set

## Details

Chapter 8
Reporting and Analyzing Long-Term Assets
36
Accounting
11/16/2008

Term
 Plant Assets
Definition
 tangible assets used in a company’s operations that have a useful life of more than one accounting period.
Term
 Plant Assets
Definition
 o   Make up the single largest class of assets they owno   Are used in operationso   Have useful lives extending over more than one accounting period
Term
 Land Improvements
Definition
 have limited useful lives and can be used up
Term
 When a company constructs a building or any plant asset for its own use, its costs include
Definition
 material s and labor plus a reasonable amount of indirect overhead cost.
Term
 Depreciation doesn't measure
Definition
 §the decline in the asset’s market value each period or the asset’s physical deterioration
Term
 Useful Life
Definition
 The length of time it is productively used in a company’s operations; also called service life
Term
Definition
 refers to the insufficient capacity of a company’s plant assets to meet its growing productive demands
Term
 Obsolescence
Definition
 refers to a plant asset that is no longer useful in producing goods or services with a competitive advantage because of new inventions and improvements
Term
 Straight-Line Method Equation
Definition
 Cost—Salvage Value Useful life in periods
Term
 Straight-Line Method
Definition
 §  Charges the same amount of expense to each period of the asset’s useful life
Term
 Units of Production Method
Definition
 §  Charges a varying amount to expense for each period of an asset’s useful life depending on its usage
Term
 Units of Prodcution Method Two- step process
Definition
 o   First get the depreciation per unito   Then get the depreciation expense
Term
 Units of Production Method Equation
Definition
 §  Depreciation per unit= cost – salvage value     Total units of production§  Depreciation expense= Depreciation per unit X Units produced in period
Term
 Double- Declining Balance MethodThree step process
Definition
 o   Compute the assets straight-line depreciation rateo   Double the straight-line rateo   Compute depreciation expense by multiplying this rate by the asset’s beginning-of-period book value
Term
 Double Declining Balance Method Equation
Definition
 §  Step 1: Straight-line rate= 100%                                            Useful life §  Step 2: Double-declining-balance rate= 2 * Straight-line rate§  Step 3: Depreciation expense= Double- declining-balance rate X Beginning- period book value
Term
 The book value of the asset when using straight-line is always
Definition
 greater than the book value of the double-declining method.
Term
 With each method the depreciation expense is
Definition
 §  the same over the assets useful life.
Term
 Modified Accelerated Cost Recovery System (MACRS)
Definition
 allows straight-line depreciation for some assets, but it requires accelerated depreciation for most kinds of assets
Term
 §  Many companies use __________depreciation in computing taxable income
Definition
 accelerated
Term
 Partial-Year Depreciation (equation)
Definition
 §  When an asset is purchased at a time other than the beginning or end of an accounting period, depreciation is recorded for part of a year§  Straight- line rate X  (month/12)
Term
 §  Accumulated Depreciation is a _______ account with a normal ______balance
Definition
 contra asset; credit
Term
 Plant assets are reported on a balance sheet at their
Definition
 §  book value, NOT MARKET VALUE
Term
 §  The cost and accumulated depreciation of plant assets are reported on
Definition
 the balance sheet
Term
 §  Revenue Expenditures
Definition
 additional costs of plant assets that don’t  increase the asset’s life or productive capabilitieso   Recorded as expenses and deducted from revenues in the current period’s income statement
Term
 §  Capital Expenditures
Definition
 additional costs of plant assets that provide benefits extending beyond the current period
Term
 Capital Expenditures:   Are _________to asset accounts and reported on the __________
Definition
 debitied, balance sheet
Term
 Revenue Expenditures includes
Definition
 Ordinary repairs
Term
 Capital Expenditures includes
Definition
 Betterments and Extraordinary Repairs
Term
 §  Disposals of plant assets can be
Definition
Term
 Depletion
Definition
 o   Depletion: the process of allocating the cost of a natural resource to the period when it is consumed
Term
 o    Natural resources are reported on the balance sheet at
Definition
 cost less accumulated depletion
Term
 Depeletion Expense Equation
Definition
 o   Depletion per unit= Cost – Salvage Value                      Total units of capacity                                Depletion expense= Depletion per unit   X   # of units sold per period
Term
 Is land depreciable
Definition
 NO; land improvements are depreciable
Term
 Salvage value is not used in which method?
Definition
 double-declining method
Term
 Bond
Definition
 its issuer’s written promise to pay an amount identified as the par value of the bond with interest
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