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