ACCT 102 – Chapter 10 – Key Terms
Key terms for Chapter 10: Plant Assets, Natural Resources, and Intangible Assets.
| A | B |
|---|---|
| Accelerated-Depreciation Method | Depreciation method that produces higher depreciation expense in the early years than in the later years. (p. 409) |
| Additions and Improvements | Costs incurred to increase the operating efficiency, productive capacity, or useful life of a plant asset. (p. 412) |
| Amortization | The allocation of the cost of an intangible asset to expense over its useful life in a systematic and rational manner. (p. 419) |
| Asset Turnover Ratio | A measure of how efficiently a company uses its assets to generate sales; calculated as net sales divided by average total assets. (p. 424) |
| Capital Expenditures | Expenditures that increase the company’s investment in productive facilities. (p. 412) |
| Copyright | Exclusive grant from the federal government that allows the owner to reproduce and sell an artistic or published work. (p. 420) |
| Declining-Balance Method | Depreciation method that applies a constant rate to the declining book value of the asset and produces a decreasing annual depreciation expense over the useful life of the asset. (p. 408) |
| Depletion | The allocation of the cost of a natural resource to expense in a rational and systematic manner over the resource’s useful life. (p. 418) |
| Depreciable Cost | The cost of a plant asset less its salvage value. (p. 406) |
| Franchise (License) | A contractural arrangement under which the franchisor grants the franchisee the right to sell certain products, render specific services, or use certain trademarks or trade names, usually within a designated geographical area. (p. 421) |
| Goodwill | The value of all favorable attributes that relate to a business enterprise. (p. 421) |
| Intangible Assets | Rights, privileges, and competitive advantages that result from the ownership of long-lived assets that do not possess physical substance. (p. 419) |
| Licenses | Operating rights to the public property granted to a business enterprise by a governmental agency. (p. 421) |
| Natural Resources | Assets that consist of standing timber and underground deposits of oil, gas, or minerals. (p. 418) |
| Ordinary Repairs | Expenditures to maintain the operating efficiency and productive life of the unit. (p. 412) |
| Patent | An exclusive right issued by the U.S. Patent Office that enables the recipient to manufacture, sell, or otherwise control an invention for a period of 20 years from the date of the grant. (p. 420) |
| Plant Assets | Tangible resources that are used in the operations of the business and are not intended for sale to customers. (p. 400) |
| Research and Development (R&D) Costs | Expenditures that may lead to patents, copyrights, new processes, or new products. (p. 422) |
| Revenue Expenditures | Expenditures that are immediately charged against revenues as an expense. (p. 412) |
| Salvage Value | An estimate of an asset’s value at the end of its useful life. (p. 405) |
| Straight-Line Method | Depreciation Method in which periodic depreciation is the same for each year of the asset’s useful life. (p. 406) |
| Trademark (Trade Name) | A word, phrase, jingle, or symbol that identifies a particular enterprise or product. (p. 420) |
| Units-of-Activity Method | Depreciation method in which useful life is expressed in terms of the total units of production or use expected from an asset. (p. 407) |
| Useful Life | An estimate of the expected productive life, also called service life, of an asset. (p. 405) |
State true or false and justify your answer: Capital expenditures are expenditures that increase.
State true or false and justify your answer: Capital expenditures are expenditures that increase the company’s investment in productive facilities.
Capital Budgeting:
Capital budgeting is the part of the budgeting function that considers and compares capital investment opportunities. It is a specialized budget function because the amounts involved in these investments are typically large, having a long-term impact on the company.
Answer and Explanation: 1
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The statement is TRUE. Capital expenditures are expenditures on the long-term assets of a company to either expand its operations or maintain them.
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