Financial Accounting: In an Economic Context

KEY TERMS

Note: Definitions for these terms are provided in the glossary at the end of the text.

Accelerated method (p. 399)

Activity method (p. 402)

Amortized (p. 386)

Betterments (p. 394)

Deferred costs (p. 385)

Deplete (p. 402)

Depreciation (p. 387)

Depreciation base (p. 398)

Dissimilar assets (p. 409)

Double-declining-balance method (p. 399)

Fixed assets (p. 385)

Intangible assets (p. 385)

Internal Revenue Code (p. 404)

Land (p. 385)

Maintenance (p. 394)

Natural resource costs (p. 385)

Physical obsolescence (p. 395)

Postacquisition expenditures (p. 393)

Retirement (p. 406)

Salvage value (p. 395)

Straight-line method (p. 398)

Technical obsolescence (p. 396)

Trade-in (p. 409)

ETHICS in the Real World

“With a simple bookkeeping change, companies can turn profits into losses—and vice versa. In many cases, the changes are perfectly justified, but the practice creates big opportunities for abuse.”

So began a Forbes article that focused on the difficulty involved with determining the depreciation and/or amortization rates for long-lived assets and the level of discretionary judgment used by management in the area. Major U.S. companies, such as Cineplex Odeon, Blockbuster, General Motors, IBM, and Delta Air Lines, are cited in the article for the wide variety of methods they use. Blockbuster once changed the amortization period for its videotapes from nine to thirty-six months, adding nearly 20 percent to its reported income; GM added $2.55 to its earningsper-share number by adjusting ...