Accounting Exam 5

  1. four main issues in accounting for plant assets:
    • (1) computing the costs of plant assets
    • (2) allocating the costs of most plant assets (less any salvage amounts) against revenues for the periods they benefit
    • (3) accounting for expenditures such as repairs and improvements to plant assets
    • (4) recording the disposal of plant assets
  2. straight line depreciation:
    (cost-salvage value) / useful life in periods
  3. units of production method:
    • (cost-salvage)/ total units in production = depreciation per unit
    • depreciation per unit x units produced in period = depreciation expense
  4. declining balance method:
    • 100% / useful life = straight line rate
    • 2 x straight line rate = double-declining-balance rate
    • DDBR x beginning period book value = depreciation expense
  5. change in estimates for depreciation:
    (book value – revised salvage value)/ revised remaining useful life
  6. Total Asset Turnover:
    net sales / average total assets
  7. Times interest earned:
    income before interest expense and income taxes/ interest expense
  8. Plant assets are set apart from other tangible assets by two important features:
    • use in operations
    • useful lives longer than one period.
  9. Revenue expenditures
    • Revenue expenditures expire in the current period and are debited to expense accounts and matched with current revenues.
    • Ordinary repairs are an example of revenue expenditures
  10. Capital expenditures
    • Capital expenditures benefit future periods and are debited to asset accounts.
    • Examples of capital expenditures are extraordinary repairs and betterments.
  11. Total asset turnover measures:
    a company’s ability to use its assets to generate sales
Card Set
Accounting Exam 5
Accounting Exam 5