Accounting Flashcards
7 cards from real Robert Half Assessment Test practice questions. Tap to flip, then mark Knew It or Still Learning — missed cards come back until you master them.
Read the first 7 Accounting flashcards as text
The price of research and development.
Answer: In accordance with generally accepted accounting principles, must be expensed as incurred
Under Generally Accepted Accounting Principles (GAAP), research and development (R&D) costs are generally required to be expensed in the period they are incurred. This is due to the inherent uncertainty regarding the future economic benefits of R&D activities. While R&D can lead to valuable assets like patents, the costs themselves are not capitalized as intangible assets until specific criteria for technological feasibility are met, which is rare for R&D itself.
On the balance sheet, trademarks are often listed.
Answer: Intangibles
Trademarks are considered intangible assets because they lack physical substance but possess economic value to a company. They represent legal rights that provide exclusive use of a brand name or logo. On the balance sheet, intangible assets like trademarks are typically listed separately from tangible assets such as property, plant, and equipment.
Allocating a plant asset's cost throughout its useful life is called depreciation (n).
Answer: Systematic and rational manner
Depreciation is the accounting process of allocating the cost of a tangible asset over its useful life. This allocation must be done in a systematic and rational manner, meaning there's a logical and consistent method (like straight-line or declining balance) used to spread the cost. The goal is to match the expense of the asset with the revenues it helps generate over its service period, not to reflect market value changes.
A long-term asset's cost is expensed.
Answer: As the asset benefits the company
The matching principle in accounting dictates that expenses should be recognized in the same period as the revenues they help generate. For long-term assets, their cost is expensed through depreciation (or amortization for intangibles) over their useful life, reflecting the periods in which the asset provides economic benefits to the company. This ensures that the financial statements accurately portray the company's profitability.
The process of depreciation.
Answer: Cost allocation
Depreciation is fundamentally a process of cost allocation, not asset valuation. It systematically distributes the historical cost of a tangible asset, less any salvage value, over its estimated useful life. The purpose is to match the expense of using the asset with the revenues it helps produce, rather than to reflect the asset's current market value.
A piece of equipment that costs $225,000 is expected to last four years and have a residual value of $15,000. It will be depreciated using a straight line. How much will depreciation cost for the first full year?
Answer: 52,500
To calculate straight-line depreciation, you subtract the residual value from the cost of the asset and then divide by its useful life. In this case, ($225,000 - $15,000) / 4 years = $210,000 / 4 years = $52,500 per year. This method allocates an equal amount of depreciation expense to each year of the asset's useful life.
Residual value is used to calculate depreciation.
Answer: A projection of the value of a plant asset at the end of its useful life
Residual value, also known as salvage value, is an estimated amount that a company expects to receive from selling or disposing of a plant asset at the end of its useful life. This projected value is crucial for calculating depreciation, as it represents the portion of the asset's cost that will not be depreciated. It is subtracted from the asset's original cost to determine the depreciable base.