Accounting Test 3 Concepts

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hunter82
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299465
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Accounting Test 3 Concepts
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2015-03-31 00:58:17
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Accounting Test Concepts
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Concepts over Chapter 7 and 8 for Test 3 in Accounting
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  1. This method produces a constant amount of depreciation expense in each period of the asset's life and is consistent with a constant rate of decline in service potential.
    Straight-line depreciation method
  2. This method accelerates the assignment of an asset's cost to depreciation expense by allocating a larger amount of cost to the early years of an asset's life. This is consistent with a decreasing rate of decline in service potential and a decreasing amount for depreciation expense.
    Declining balance depreciation method
  3. This method is based on measure of the asset's use in each period, and the periodic depreciation expense rises and falls with the asset's use. In this sense, this method is based not on a standardized pattern of declining service potential but on a pattern tailored to the individual asset and its use.
    Units-of-production depreciation method
  4. These are designed to stimulate investment in operating assets and therefore, are not guided by the matching principle.
    Tax depreciation rules
  5. These provide for the rapid (accelerated) expensing of depreciable assets, which lowers taxes. By bringing forward the bulk of depreciation expense, these enable companies to save cash by delaying the payment of taxes.
    Tax depreciation rules
  6. Most companies use this method to compute depreciation expense for their tax returns, which is similar to the declining balance method. This method is not acceptable for financial reporting purposes. (Hint: the answer is not any of the three depreciation methods because they can not be used in company's tax returns. The Internal Revenue Code specifies which method a company should use)
    Modified Accelerated Cost Recovery System (MACRS)
  7. When a capital expenditure is made, it is also necessary for a company to recalculate its depreciation expense. In such situations, the company does not change previously recorded amounts related to depreciation. Instead, any revision of depreciation expense is accounted for in current and future periods. True or False?
    True
  8. Voluntary disposal occurs when assets are lost or destroyed through theft, acts of nature, or by accident. True or False?
    • False
    • Correct Answer: Voluntary disposal occurs when the company determines that the asset is no longer useful. The disposal may occur at the end of the asset's useful life or at some other time.
  9. This occurs when assets are lost or destroyed through theft, acts of nature, or by accident.
    Involuntary Disposal
  10. Whether the disposal of fixed assets is voluntary or involuntary, disposals rarely occur on the first or last day of an accounting period. Therefore, the disposal of property, plant, and equipment usually require two journal entries:
    1. An entry to record depreciation expense up to the date of the disposal.
    2. An entry to:
    -Remove the asset's book value (the cost of the asset and the related accumulated depreciation)
    -Record a gain or loss on disposal of the asset, which is computed as the difference between the proceeds from the sale and the book value of the asset
    True or False?
    True
  11. Gains and losses on the disposal of property, plant, and equipment are normally reported as "other assets or credits" or "other expenses and losses," respectively, and appear immediately after income from operations on a single-step income statement. True or False?
    • False
    • Correct Answer: Gains and losses on the disposal of property, plant, and equipment are normally reported as "other revenues or gains" or "other expenses and losses," respectively, and appear immediately after income from operations on a multiple-step income statement.
  12. If the company's fixed asset turnover ratio is high what does that tell about how the company has been using its fixed assets?
    This means the company is using its fixed assets very efficiently.
  13. By using this ratio, the age of _ _ is provided. This information can provide useful insights into the company's efficiency. Also, it can provide an indication of a company's capital replacement policy and assist managers in estimating future capital expenditures.
    Average Age of Fixed Assets Ratio and Fixed Assets
  14. Intangible assets are recorded at cost, consistent with this principle.
    Historical Cost Principle
  15. Similar to fixed assets, the cost of an intangible asset is any expenditure necessary to relocate assets and to make notes on the asset before use. True or False?
    • False
    • Correct Answer: Similar to fixed assets, the cost of an intangible asset is any expenditure necessary to acquire the asset and prepare it for use.
  16. For internally developed intangible assets, the cost of developing the asset is expensed as incurred and normally recorded as what expense? Also, this is arguably not an intangible asset.
    Research and Development (R&D) Expense
  17. These are an intangible asset that provides a benefit to a company indefinitely. Consist of legal fees, stock issue costs, accounting fees, and promotional fees.
    Organizational Costs
  18. Amortization is a process where the cost of an intangible asset with an finite life, like the cost of a tangible asset, is allocated to accounting periods over the life of the asset to reflect the decline in service potential. True or False?
    True
  19. If an intangible asset is determined to have an indefinite life, then is it amortized or not?
    No, but is reviewed at least annually for impairment.
  20. Right to the exclusive use of a distinctive name, phrase, or symbol. The legal life is 10 years but it can be renewed indefinitely. This is not amortized since it has an indefinite life; reviewed at least annually for impairment.
    Trademark
  21. Unidentifiable intangible asset that arises from factors such as customer satisfaction, quality products, skilled employees, and business location. This is only recognized in business combinations. Not amortized since it as has an indefinite life; reviewed annually for impairment.
    Goodwill
  22. Right to manufacture, sell, or use a product. The legal life is 20 years from the date of grant.
    Patent
  23. Right to publish, sell, or control a literary or artistic work. The legal life is life of author plus 70 years.
    Copyright
  24. Exclusive right to conduct a certain type of business in some particular geographic area. Life of the this depends on specific terms of this.
    Franchise
  25. Operating assets differ from natural resources in two different ways. One, unlike fixed assets, natural resources are physically consumed as they are used by a company. Two, natural resources can generally be replaced or restored only by an act of nature. True or False?
    • False
    • Correct Answer: Natural resources differ from operating assets in those different ways.
  26. Process of allocating the cost of the natural resource to each period in which the resource is used is known as?
    Depletion
  27. These are recognized by adjusting entries.
    Accrued Liabilities
  28. In addition to short-term borrowing, notes payable are often created when a borrower is unable to pay an account payable in a timely manner. In this case, the borrower is typically granted a payment extension, but the creditor requires that a formal note be signed to impose interest. True or False?
    True
  29. Employers must pay certain taxes that are "withheld" from their paycheck. This is the difference between gross pay and net pay. True or False?
    • False
    • Correct Answer: Employees must pay certain taxes that are "withheld" from their paycheck.
  30. The business itself must pay certain taxes based on employee payrolls. These amounts are not withheld from employee pay; they are additional amounts that must be paid over and above gross pay. True or False?
    True
  31. When employers match employee contributions to Social Security and Medicare this is known as...
    FICA
  32. An example of this includes employer contributions to retirement accounts and health insurance. (Note: these are not taxes)
    Fringe benefits
  33. Pertaining to contingent liabilities if a reasonable estimate can be made and is probable what should you do?
    Make a journal entry to record the liability
  34. Pertaining to contingent liabilities if a reasonable estimate can be made and is reasonably probable what should you do?
    No journal entry is made disclose information in footnote to the financial statements.
  35. Pertaining to contingent liabilities if a reasonable estimate can be made and is remote what should you do?
    Neither record as a liability nor disclose in a footnote to the financial statements.
  36. Pertaining to contingent liabilities if no reasonable estimate can be made but is probable what should you do?
    No journal entry is made: disclose information in footnote to the financial statements.
  37. Pertaining to contingent liabilities if no reasonable estimate can be made and is reasonably possible what should you do?
    No journal entry is made: disclose information in footnote to the financial statements.
  38. Pertaining to contingent liabilities if no reasonable estimate can be made and is remote what should you do?
    Neither record as a liability nor disclose in a footnote to the financial statements.
  39. What two elements proves it is a contingent liability?
    If a reasonable estimate can be of the loss and is probable
  40. This guarantees the repair or replacement of defective goods during a period (ranging from a few days to several years) following the sale.
    Warranties
  41. Pertaining to warranties the matching concept requires that all expenses required to produce sales revenue for a given period be recorded in that period. True or false?
    True
  42. The recognition of warranty expense and (estimated) warranty liability is normally recorded by an adjustment at the end of the accounting period. True or false?
    True
  43. The ability to meet company's short-term obligations.
    Liquidity

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