ACC Test 3 review - Chapter 11 Current assets-those that...

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Chapter 11 Current assets—those that management expects to convert to cash or consume during the coming fiscal year Long term assets—provide benefits to a company that extend beyond the coming fiscal year or operating cycle, and usually are divided into 4 categories: o 1. Long-term investments—investments in financial securities of other companies o 2. Property, plant, and equipment—includes investments in tangible assets that a company intends to use in the future to produce or sell its product o 3. Intangible assets—those that provide legal rights or benefits to a company, such as patents, copyrights, trademarks, and goodwill o 4. Other assets—include miscellaneous resources that are important to a particular company such as long-term receivables and a building that the company is trying to sell Plant asset cost o Amount paid for the asset o Cost of transportation o Site preparation o Instillation o Construction necessary to make the asset usable for its intended purpose Expenditures made to acquire new plant assets extend the asset’s life, or enhance the value of an existing plant asset, are known as capital expenditures . Expenditures to repair or maintain plant assets, that do not extend the life or enhance the value, are known as operating expenditures. Most depreciation methods fall into 3 general categories: o Straight-line depreciation: Allocates an equal amount of the cost of a plant asset to expense during each fiscal period of the asset’s expected useful life. (cost – residual value)/ expected life o Accelerated depreciation—allocates a larger portion of the cost of a plant asset to expense early in the asset’s life and a smaller portion in later years. Double-declining- balance depreciation expense=book value x 2/(expected useful life) o Units-of-production depreciation—produces a level amount of depreciation expense per unit of output (rather than per fiscal period). Units-of-production Depreciation= (Cost – Residual value)/expected units Accumulated depreciation – a contra-asset account that offsets equipment book value—the book value of a plant asset is the net cost of the asset after accumulated depreciation has been subtracted from the historical cost Reasons for using Accelerated depreciation
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ACC Test 3 review - Chapter 11 Current assets-those that...

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