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Accounting Chapter 8

Capital Expenditure or Revenue Expenditure

Costs related to acquiring an asset, such as sales or excise taxes, transportation, and insurance during shipment

Capital Expenditure
Capital Expenditure or Revenue Expenditure

Costs incurred prior to using the asset, such as installation and other costs to prepare the asset for use

Capital Expenditure
Capital Expenditure or Revenue Expenditure

Costs incurred after putting the asset into service which keep the asset in normal operating

Revenue Expenditure
Capital Expenditure or Revenue Expenditure

Costs incurred after putting the asset into service which would extend the assets useful life

Capital Expenditure
Terms of the purchase were 2/10, net 30. Katz paid for the purchase on March 8
This item should be included as part of the cost of the equipment
3,000 freight costs were paid to ship the equipment from the manufacturer
This item should be included as part of the cost of the equipment
A state agency required that a pollution control device be installed on the equipment at a cost of 5,000
This item should be included as part of the cost of the equipment
During the installation, the equipment was damaged and repair costs of 2,000 were incurred
This item should be considered as revenue expenditure
It was necessary for an architect to redesign the work space to accommodate the new equipment. A fee of 6,000 was paid
This item should be included as part of the cost of the equipment
The company purchased a 3 year liability insurance policy to cover possible damage caused by the new equipment at a cost of 6,000
This item should be considered as a revenue expenditure
The company financed the equipment purchase with a bank loan. Interest of 3,000 was paid on the loan during 2011
This item should be considered as a revenue expenditure
Identify where each of the following accounts would be reported on Coca Cola’s financial statement

Depreciation Expense

Income Statement – Operating Section
Identify where each of the following accounts would be reported on Coca Cola’s financial statement

Gain on disposal of plant asset

Income Statement – Other revenue and expense section
Identify where each of the following accounts would be reported on Coca Cola’s financial statement

Building

Balance Sheet – Property, Plant, Equipment
Identify where each of the following accounts would be reported on Coca Cola’s financial statement

Copyright

Balance Sheet -Intangible Assets
Identify where each of the following accounts would be reported on Coca Cola’s financial statement

Accumulated Depreciation

Balance Sheet – Property, Plant, Equipment
Identify where each of the following accounts would be reported on Coca Cola’s financial statement

Amortization Expense

Income Statement – Operating Section
Identify where each of the following accounts would be reported on Coca Cola’s financial statement

Loss on disposal of plant asset

Income Statement – Other revenue and expense section
Identify where each of the following accounts would be reported on Coca Cola’s financial statement

Patents

Balance Sheet – Intangible Assets
Identify where each of the following accounts would be reported on Coca Cola’s financial statement

Goodwill

Balance Sheet – Intangible Assets
Which of the following accounts would not be reported in the property, plant, and equipment section of the balance sheet?
Depreciation Expense – Building
Which of the following costs related to the purchase of production equipment incurred by ABC Company during 2011 would be considered a revenue expenditure?
Repair and Maintenance costs during the equipments first year of service
On the balance sheet, the cumulative amount of depreciation recognized to date on a fixed asset is called
Accumulated Depreciation
Depreciation is a process by which
the cost of plant and equipment is allocated to expense over its useful life
Land is not depreciated because
it will provide future benefits for the company for an unlimited period of time
Assets Classified as property, plant, and equipment are reported at
each assets original cost less depreciation since acquisition
The process of systematically and rationally allocating the cost of a fixed asset over it useful life
Depreciation
The effect of recording depreciation for the year is an
decrease in assets and a decrease in net income
Plant assets are depreciated because
the accrual basis of accounting requires matching of costs to revenues
Which of the following should be included in the acquisition cost of a piece of equipment
Transportation Costs
Installation Costs
Testing Costs prior to placing the equipment into production
Which of the following is included in the cost of constructing a building
Insurance Costs during construction
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?
Double Declining Balance Method
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
Units of activity method
A company should choose a depreciation method that
best allocates the original cost of the asset to the periods benefited by the use of the asset
If technology changes rapidly, a firm should
consider an accelerated rate of depreciation
Using different depreciation methods for book purposes versus tax purposes for the same asset is
the direct result of the differing goals of financial and tax accounting
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
MORE
All of the following below are needed for the calculation of straight line depreciation except
Units produced
The depreciation method that does not use salvage value in calculating the first years depreciation expense is
double declining balance method
Capitalizing an expenditure rather than recording it as a revenue expenditure
Impacts the total book value of plant assets reported on the balance sheet and the amount of net income reported during a period
Expenditures that increase the expected useful life or productivity of the asset are
capital expenditures
A capital expenditure results in a debit to
an asset account
Example of a capital expenditure?
Replacing an engine in a company car
Striker company sold equipment for 4,000. This results in a 1500 loss. What is the impact of this sale on the balance sheet?
Reduce Total Assets
If a companys fixed asset turnover ration decreased from 2010 to 2011, which of the following conclusions can be made?
The company produces less Sales in 2011 for each dollar invested in fixed assets compare to 2010
Cash paid to purchase significant amounts of fixed assets would be reported in the statement of cash flows in
the cash flows from investing activities section
A company purchases equipment for 32,000 cash. This transaction should be shown on the statement of cash flows under:
investing activities
Cash flows from acquiring and disposing of long term assets are classified as
investing activities
Which is not a investing activity?
Sale of merchandise for cash
Purchase of investment for cash
Purchase of equipment for cash
Sale of land for cash

all of these are example of

Investing activites
Which balance sheet section is most affected by investing activities?
Long Term Assets
A disposal of a used delivery truck is a transaction shown on the statement of cash flows under:
investing activites
Resources that are used in operations more than one year with no physical substance are called
intangible assets
The accounting life of a intangible assets is determined by
The legal lives or useful lives, whichever is shorter
How should intangible assets be disclosed on the balance sheet?
Net of the costs already amortized
According to the accounting standards, the costs of intangible assets with an indefinite life, such as goodwill, should
not be amortized, but should be reviewed annually for impairment
Goodwill can be recorded as an asset when an
Business is purchased and payment is made in excess of the value of the net assets
Which of the following is an intangible asset?
Goodwill
The exclusive right to use a certain name or symbol is called a
trademark
_______ refers to the market value of the asset at the end of its useful life
Salvage Value
_______ is the depreciation method used most frequently
Straight line method
________ is the depreciation method considered “accelerated”
Double declining balance method
_____ is a cost that improves an operating asset and is added to the asset account
Capital Expenditure
______ is the right to produce or sell published work
Copyright
_______ 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
goodwill

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