Accounting Chapter 8 – Flashcards
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Capital Expenditure or Revenue Expenditure Costs related to acquiring an asset, such as sales or excise taxes, transportation, and insurance during shipment
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Capital Expenditure
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Capital Expenditure or Revenue Expenditure Costs incurred prior to using the asset, such as installation and other costs to prepare the asset for use
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Capital Expenditure
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Capital Expenditure or Revenue Expenditure Costs incurred after putting the asset into service which keep the asset in normal operating
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Revenue Expenditure
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Capital Expenditure or Revenue Expenditure Costs incurred after putting the asset into service which would extend the assets useful life
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Capital Expenditure
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Terms of the purchase were 2/10, net 30. Katz paid for the purchase on March 8
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This item should be included as part of the cost of the equipment
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3,000 freight costs were paid to ship the equipment from the manufacturer
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This item should be included as part of the cost of the equipment
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A state agency required that a pollution control device be installed on the equipment at a cost of 5,000
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This item should be included as part of the cost of the equipment
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During the installation, the equipment was damaged and repair costs of 2,000 were incurred
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This item should be considered as revenue expenditure
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It was necessary for an architect to redesign the work space to accommodate the new equipment. A fee of 6,000 was paid
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This item should be included as part of the cost of the equipment
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The company purchased a 3 year liability insurance policy to cover possible damage caused by the new equipment at a cost of 6,000
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This item should be considered as a revenue expenditure
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The company financed the equipment purchase with a bank loan. Interest of 3,000 was paid on the loan during 2011
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This item should be considered as a revenue expenditure
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Identify where each of the following accounts would be reported on Coca Cola's financial statement Depreciation Expense
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Income Statement - Operating Section
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Identify where each of the following accounts would be reported on Coca Cola's financial statement Gain on disposal of plant asset
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Income Statement - Other revenue and expense section
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Identify where each of the following accounts would be reported on Coca Cola's financial statement Building
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Balance Sheet - Property, Plant, Equipment
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Identify where each of the following accounts would be reported on Coca Cola's financial statement Copyright
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Balance Sheet -Intangible Assets
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Identify where each of the following accounts would be reported on Coca Cola's financial statement Accumulated Depreciation
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Balance Sheet - Property, Plant, Equipment
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Identify where each of the following accounts would be reported on Coca Cola's financial statement Amortization Expense
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Income Statement - Operating Section
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Identify where each of the following accounts would be reported on Coca Cola's financial statement Loss on disposal of plant asset
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Income Statement - Other revenue and expense section
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Identify where each of the following accounts would be reported on Coca Cola's financial statement Patents
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Balance Sheet - Intangible Assets
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Identify where each of the following accounts would be reported on Coca Cola's financial statement Goodwill
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Balance Sheet - Intangible Assets
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Which of the following accounts would not be reported in the property, plant, and equipment section of the balance sheet?
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Depreciation Expense - Building
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Which of the following costs related to the purchase of production equipment incurred by ABC Company during 2011 would be considered a revenue expenditure?
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Repair and Maintenance costs during the equipments first year of service
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On the balance sheet, the cumulative amount of depreciation recognized to date on a fixed asset is called
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Accumulated Depreciation
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Depreciation is a process by which
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the cost of plant and equipment is allocated to expense over its useful life
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Land is not depreciated because
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it will provide future benefits for the company for an unlimited period of time
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Assets Classified as property, plant, and equipment are reported at
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each assets original cost less depreciation since acquisition
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The process of systematically and rationally allocating the cost of a fixed asset over it useful life
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Depreciation
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The effect of recording depreciation for the year is an
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decrease in assets and a decrease in net income
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Plant assets are depreciated because
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the accrual basis of accounting requires matching of costs to revenues
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Which of the following should be included in the acquisition cost of a piece of equipment
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Transportation Costs Installation Costs Testing Costs prior to placing the equipment into production
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Which of the following is included in the cost of constructing a building
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Insurance Costs during construction
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Butler Corporation uses plant assets that are subject to rapid decreases in value due to obsolescence and physical deterioration. Which of the following depreciation methods is most appropriate to measure the decline in the usefulness of the companies assets?
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Double Declining Balance Method
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Fly High Airlines acquires a new aircraft. It has an estimated life of 10 years and should be used for 20,000 hours of flight. What is the most appropriate method of depreciation to properly match revenues and expenses
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Units of activity method
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A company should choose a depreciation method that
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best allocates the original cost of the asset to the periods benefited by the use of the asset
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If technology changes rapidly, a firm should
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consider an accelerated rate of depreciation
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Using different depreciation methods for book purposes versus tax purposes for the same asset is
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the direct result of the differing goals of financial and tax accounting
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Using the straight line depreciation method will cause a company to incur __ tax expense in the early years of an assets life than they would experience using an accelerated method of depreciation
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MORE
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All of the following below are needed for the calculation of straight line depreciation except
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Units produced
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The depreciation method that does not use salvage value in calculating the first years depreciation expense is
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double declining balance method
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Capitalizing an expenditure rather than recording it as a revenue expenditure
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Impacts the total book value of plant assets reported on the balance sheet and the amount of net income reported during a period
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Expenditures that increase the expected useful life or productivity of the asset are
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capital expenditures
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A capital expenditure results in a debit to
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an asset account
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Example of a capital expenditure?
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Replacing an engine in a company car
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Striker company sold equipment for 4,000. This results in a 1500 loss. What is the impact of this sale on the balance sheet?
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Reduce Total Assets
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If a companys fixed asset turnover ration decreased from 2010 to 2011, which of the following conclusions can be made?
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The company produces less Sales in 2011 for each dollar invested in fixed assets compare to 2010
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Cash paid to purchase significant amounts of fixed assets would be reported in the statement of cash flows in
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the cash flows from investing activities section
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A company purchases equipment for 32,000 cash. This transaction should be shown on the statement of cash flows under:
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investing activities
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Cash flows from acquiring and disposing of long term assets are classified as
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investing activities
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Which is not a investing activity?
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Sale of merchandise for cash
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Purchase of investment for cash Purchase of equipment for cash Sale of land for cash all of these are example of
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Investing activites
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Which balance sheet section is most affected by investing activities?
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Long Term Assets
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A disposal of a used delivery truck is a transaction shown on the statement of cash flows under:
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investing activites
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Resources that are used in operations more than one year with no physical substance are called
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intangible assets
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The accounting life of a intangible assets is determined by
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The legal lives or useful lives, whichever is shorter
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How should intangible assets be disclosed on the balance sheet?
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Net of the costs already amortized
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According to the accounting standards, the costs of intangible assets with an indefinite life, such as goodwill, should
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not be amortized, but should be reviewed annually for impairment
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Goodwill can be recorded as an asset when an
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Business is purchased and payment is made in excess of the value of the net assets
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Which of the following is an intangible asset?
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Goodwill
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The exclusive right to use a certain name or symbol is called a
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trademark
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_______ refers to the market value of the asset at the end of its useful life
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Salvage Value
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_______ is the depreciation method used most frequently
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Straight line method
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________ is the depreciation method considered "accelerated"
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Double declining balance method
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_____ is a cost that improves an operating asset and is added to the asset account
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Capital Expenditure
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______ is the right to produce or sell published work
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Copyright
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_______ is an account that can only exist if one company purchases another business and the cost exceeds the fair market values of the identifiable net assets at the time acquired
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goodwill
