A government agency may grant a franchise to a private company. A city may give a franchise to a utility company, giving the utility company the exclusive right to provide service to a particular area. Over time as the asset is used to generate revenue, Liam will need to depreciate the asset. No cash is received.a loss must be recognized for the remaining book value. Recording depreciation results in the allocation of the cost of a long-term asset to the years during which the asset provides __________ .
NC Life Insurance – Other Life Topics – Chapter Quiz
Recognized intangible assets deemed to have indefinite useful lives are not to be amortized. Amortization will however begin when it is determined that the useful life is no longer indefinite. The method of amortization would follow the same rules as intangible assets with finite useful lives. Which statement is true about the straight-line method of depreciation? Cost of the asset plus QuickBooks the residual value.cost of the asset minus depreciation expense.historical cost less accumulated depreciation.the cost of the asset minus the residual value. The cost of the asset minus the residual value.cost of the asset minus depreciation expense.cost of the asset plus the residual value.historical cost less accumulated depreciation.
Repair and Maintenance Costs of Property, Plant, and Equipment
For example, if a supercharger is added to a car to increase its horsepower, the car’s performance is increased, and the cost should be included as a part of the vehicle asset. Likewise, if replacing the engine of an older car extends its useful life, that cost would also be capitalized. WorldCom used a number of Bookstime accounting gimmicks to defraud investors, mainly including capitalizing costs that should have been expensed.
Intangible assets
It is difficult to determine whether costs will result in future benefits. ________ value is the amount the company expects to receive for the asset cost allocation of an intangible asset is referred to as at the end of its service life. The allocation of the cost of a tangible fixed asset is referred to as _________ , whereas the allocation of the cost of an intangible asset is referred to as _________. When assets are purchased in a group for a single sum, it is referred to as a ______________. Group asset divestiture.business consolidation.composite purchase.basket purchase.
Adding a new computer-aided cutting device to an existing machine.c.
- The firm also debits the Patents account for the cost of the first successful defense of the patent in lawsuits (assuming an outside law firm was hired rather than using internal legal staff).
- However, the information gained from such accounting would not be significant because normally intangibles do not account for as many total asset dollars as do plant assets.
- Straight-line amortization is calculated the same was as straight-line depreciation for plant assets.
- The method of amortization should be based upon the pattern in which the economic benefits are used up or consumed.
- Initially, firms record intangible assets at cost like most other assets.
- The estimated use the company expects to obtain from an asset before disposing of it is referred to as the _______ life of the asset.
Under normal circumstances, this might have been considered just another account fiasco leading to the end of a company. (cost + residual value)/service life.service life/(cost + residual value).cost/service life.(cost – residual value)/service life. When assets are purchased in a group for a single sum, it is referred to as aMultiple choice question.composite purchase.basket purchase.business consolidation.group asset divestiture.
Classifying Assets and Related Expenditures
- A(n) ______________ is protected by law and gives the creator of a published work the exclusive rights to reproduce and sell the work for the life of the creator plus 70 years.
- Recording depreciation results in the allocation of the cost of a long-term asset to the years during which the asset provides __________ .
- An accumulated amortization account could be used to record amortization.
- Multiple choice question.Depreciation recognized during the earlier years.Depreciation recognized during the last year of the asset’s service life.Total depreciation recognized over the asset’s service life.
- Straight-line, declining-balance, and activity-based refer to methods commonly used to __________ property, plant, and equipment.
- In contrast, if Liam had the company upgrade the circuit board of the silk-screening machine, thereby increasing the machine’s future capabilities, this would be capitalized and depreciated over its useful life.
A business must expend cash, or take on debt, or issue owners’ equity shares for an intangible asset in order to record the asset on its books. Building up a good reputation with customers or establishing a well-known brand is not recorded as an intangible asset. Many businesses invest a lot of money in production facilities and operations. Some production processes are more automated than others, and they require a greater investment in property, plant, and equipment than production facilities that may be more labor intensive.
- The estimated use that the company expects to obtain from the asset before disposing of it.
- Help her classify the expenditures as either capitalized or expensed, and note which assets are property, plant, and equipment.
- The term used to describe the amount the company expects to receive for an asset at the end of its service life isMultiple choice question.historical cost.residual value.impairment value.lower of cost or market value.
- It recognizes expense proportionately with the amount of use of the asset.c.
In contrast, if Liam had the company upgrade the circuit board of the silk-screening machine, thereby increasing the machine’s future capabilities, this would be capitalized and depreciated over its useful life. Depreciation is the process of allocating the cost of a tangible asset over its useful life, or the period of time that the business believes it will use the asset to help generate revenue. This process will be described in Explain and Apply Depreciation Methods to Allocate Capitalized Costs.
2 Analyze and Classify Capitalized Costs versus Expenses
Multiple choice question.Capitalize the costs and test for impairment.Expense the costs as incurred.Capitalize the costs and amortize them over the expected life of the goodwill.Record as an extraordinary loss in the current year. An asset that has no physical substance is referred to as a(n)Multiple choice question.finite asset.intangible asset.current asset.depreciable asset. When purchasing a patent, a company records it in the Patents account at cost. The firm also debits the Patents account for the cost of the first successful defense of the patent in lawsuits (assuming an outside law firm was hired rather than using internal legal staff).