during the asset’s construction The interest on the debt related to the asset’s construction Adding the capitalized interest to the asset’s cost instead of reporting it as interest expense of the current...
during the asset’s construction The interest on the debt related to the asset’s construction Adding the capitalized interest to the asset’s cost instead of reporting it as interest expense of the current...
the life of the bonds. Example of Discount on Bonds Payable Assume that a corporation prepares to issue bonds having a maturity amount of $10,000,000 and a stated interest rate of 6% (per year). However, when the bonds...
the life of the loan because of the matching principle. Example of Amortizing Loan Costs Assume that a company incurs loan costs of $120,000 during February in order to obtain a $4 million loan at an annual interest...
accumulated depreciation. Use the following information for answering Questions 10 - 13: Equipment having a cost of $10,000 was acquired on July 1, 2023. The equipment is expected to have no salvage value at the end of...
Our Explanation of Bonds Payable covers the recording of bonds, the accrual of interest expense, and the amortization of the discount and premium on bonds payable. You gain an understanding on why the market value of...
the remaining life of the equipment. Small expenditures to improve office equipment are usually expensed immediately because of the materiality concept. This means the amount is so small that no one will be misled by...
Accounting estimates include the estimated salvage value and the estimated useful life of depreciable assets, estimated percentage of bad debts expense, estimated percentage of units to be repaired or replaced during a...
What is the difference between residual value, salvage value, and scrap value? The terms residual value, salvage value, and scrap value are often used when referring to the estimated value that is expected at the end of...
The preferred method for systematically moving bond discount or premium from the balance sheet over to interest expense on the income statement over the life of the bond. This method is superior to the straight-line...
and related fringe benefits) is part of the cost of the asset (and not an immediate expense of the accounting period). The total cost of the asset, including installation costs, will become an expense when the asset...
How many years is the appropriate time for depreciating leasehold improvements? Leasehold improvements should be depreciated or amortized according to the lessee’s normal depreciation policy except that the time period...
The accounting guideline that permits the violation of another accounting guideline if the amount is insignificant. For example, a profitable company with several million dollars of sales is likely to expense immediately...
What is depreciation? Definition of Depreciation In accounting, depreciation is the assigning or allocating of the cost of a plant asset (other than land) to expense in the accounting periods that are within the...
information that will make a difference to an investor, lender, or other decision maker. As a result of the full disclosure principle, a company’s financial statements must include notes to the financial statements....
is the __________ __________. 3. Generally a __________ asset is one that will turn to cash or will be used up within one year of the balance sheet date. 4. Plant assets used in the business are reported under the...
that a company purchased new equipment 5 years ago at a cost of $210,000. The asset had a useful life of 7 years and no salvage value. As a result, each year the company debited Deprecation Expense for $30,000 and...
are recorded as part of the cost of the van. The total cost of the van will then be charged to depreciation expense over the van’s useful life. Examples of Sales Tax If a company sells $100,000 of merchandise that is...
What are some of the methods for evaluating capital expenditures? Definition of Evaluating Capital Expenditures Capital expenditures involve large amounts of money spent on assets that have a useful life of more than one...
Why is depreciation on the income statement different from the depreciation on the balance sheet? Definition of Depreciation Depreciation is the systematic allocation of an asset’s cost to expense over the useful life...
referred to as a __________–__________ cost. 5. The additional quantity of inventory held by a company so that it will not run out of stock when there is an unexpected increase in demand for its product is known as...
the defined benefit pension plan, the employer commits to depositing enough money into a pension fund in order to cover the future benefits. Since there is uncertainty in the investment returns, the life expectancy of...
Why do bonds rarely sell for their maturity value? The reasons why bonds rarely sell for their maturity value are: The interest paid is usually fixed at the interest rate that is stated on the face of the bond. As a...
the cost over the useful life. However, if the amount of the addition or the improvement is relatively small, the accounting concept of materiality allows you to expense the entire amount immediately. Join PRO to Track...
at a cost of $500,000. It is expected that the equipment will have no salvage value at the end of an estimated useful life of 10 years. For its financial statements the corporation will usually charge the same amount...
be used instead of the more common terms of salvage value, disposal value, or residual value when calculating the depreciation of an asset used in the business. In this situation, scrap value is the expected or...
How do you account for bond issue costs? Definition of Bond Issue Costs The costs associated with issuing bonds are debited to a contra liability account such as Bond Issue Costs. Over the life of the bonds, the issue...
, the building’s cost (including the capitalized interest) is depreciated over its useful life. Join PRO to Track Progress Mark the Question as Read Must-Watch Video Learn How to Advance Your Accounting and Bookkeeping...
as a long-term asset. Noncurrent assets are reported under the following balance sheet headings: Investments (long-term) Property, plant and equipment Intangible assets Other assets Examples of Noncurrent Assets...
What is a plant asset? What is a Plant Asset A plant asset is an asset with a useful life of more than one year that is used in producing revenues in a business’s operations. Plant assets are also known as fixed...
involved when a company constructs its own building is also a deferred cost. The reason is that the interest will be added to the cost of the building and then depreciated over the life of the building—instead of...
in an investment having a net present value of zero. The internal rate of return is one of the tools in capital budgeting that considers both of the following: The time value of money All of the cash payments and cash...
accumulated depreciation is subtracted from the asset’s cost to indicate the asset’s book value. The book value indicates the maximum amount of future depreciation remaining. Since depreciation is defined as the...
Equipment. Since the repair was not an improvement nor did it extend the life of the equipment, the controller prepared a journal entry that debits Repairs Expense for $5,000 and credits Equipment for $5,000. The...
. There will be no depreciation expense recorded after the asset is fully depreciated. No entry is required until the asset is disposed of through retirement, sale, salvage, etc. To illustrate this, let’s assume that a...
the bond’s face amount, the difference is debited to this account and then amortized to interest expense over the life of the bonds. discount on bonds payable (or) bond discount When a new bond is issued and the...
and the owner’s drawing account. Mark as wrong Mark as right assets These are a company’s resources which have future economic value that can be measured and expressed in the company’s currency. assets These are a...
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