ACCT 2010 Exam 3 Questions and Complete Solutions

Costs that aren't capitalized examples insurance, small dollar amounts, interest on loans, ordinary repairs/maintenance Depreciation on income statement is called depreciation expense Depreciation on balance sheet is called accumulated depreciation Depreciation effects on the acct equation Assets: -accumulated dep. SE: -depreciation exp. Book Value formula cost - accumulated depreciation (net value on balance sheet) Straight Line depreciation (cost-residual value) x (1/useful life) Units of Production Depreciation (cost-residual value)*(actual production this period/estimated total production) Declining Balance Depreciation (cost-accumulated depreciation) x (2/useful life) impairment definition Occurs when the cash to be generated by an asset is estimated to be less than the carrying value of that asset and requires that the carrying value of the asset be written down. Impairment effects on acct. equation 1. (eliminating asset's dep) Assets: -equipment; +accumulated dep. 2. (writing asset's fair value) Assets: -equipment SE: -impairment loss Disposing an asset before end of life effects on acct. equation Assets: -equipment; +accumulated dep.; +cash SE: +gain on disposal What kind of life of an intangible asset is amortized? - limited - unlimited limited What effects does amortization have on the acct. equation? (only for intangible assets) Assets: -accumulated dep. SE: -amortization exp. Fixed Asset Turnover Ratio net revenue/average net fixed assets EBITDA Earnings before interest, taxes, depreciation, and amortization What is depletion used for? natural resources Depletion effects on the acct. equation Assets: +(timber*)Inventory; -accumulated depletion