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Plant Assets and Intangibles

Asset Account on Related Expense Accountthe Balance Sheet on the Income StatementPlant AssetsLand

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Plant Assets and Intangibles

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    1. Plant Assets and Intangibles Chapter 10

    2. Plant Assets

    3. Measure the cost of a plant asset. Objective 1

    4. Cost Principle

    5. Land and Land Improvements Purchase price of land $500,000 Add related costs: Back property taxes $40,000 Transfer taxes 8,000 Removal of buildings 5,000 Survey fees 1,000 54,000 Total cost of land $554,000

    6. Land Improvements All improvements located on the land but subject to decay:

    7. Buildings – Construction

    8. Buildings – Purchasing

    9. Machinery and Equipment

    10. Lump-Sum Purchases Example Andrea Ortiz paid $110,000 for a combined purchase of land and a building. The land is appraised at $90,000 and the building at $60,000. How much of the purchase price is allocated to land and how much to the building?

    11. Lump-Sum Purchases Example

    12. Distinction Between Capital and Revenue Expenditures

    13. Measuring the Depreciation of Plant Assets

    14. Objective 2 Account for depreciation.

    15. Depreciation Methods

    16. Depreciation Methods Example Donishia and Richard Catering, Inc., purchased a delivery van on January 1, 200x, for $22,000. The company expects the van to have a trade-in value of $2,000 at the end of its useful life. The van has an estimated service life of 100,000 miles or 4 years.

    17. Straight-Line Method Example

    18. Units-of-Production Method Example

    19. Double-Declining-Balance Method Example Straight-line rate is 100% ÷ 4 = 25% Double-declining-balance = 2 times the straight-line rate = 50% What is the book value of the van at the end of the first year? $22,000 × 50% = $11,000 $22,000 – $11,000 = $11,000

    20. Double-Declining-Balance Method Example Dec. 31, 200x Depreciation Expense $11,000 Accumulated Depreciation $11,000 To record depreciation expense for a one-year period

    21. Depreciation Methods Comparison

    22. Use of Depreciation Methods

    23. Objective 3 Select the best depreciation method for tax purposes.

    24. Relationship Between Depreciation and Taxes MACRS was created by the Tax Reform Act of 1986. It is an accelerated method used for depreciating equipment.

    25. Depreciation for Partial Years Assume that Donishia and Richard Catering, Inc., owned the van for 3 months. How much is the van’s depreciation?

    26. Revising Depreciation Rates

    27. Objective 4 Account for the disposal of a plant asset.

    28. Disposing of Plant Assets selling exchanging discarding (scrapping it) Gain/loss is reported on the income statement... and closed to Income Summary.

    29. Disposing by Discarding Example On September 1, Joe, manager of Joe’s Landscaping, is contemplating the disposal of an old piece of equipment: Equipment cost: $36,000 Residual value: $ 6,000 Accumulated depreciation: $20,000 Estimated useful life at acquisition: 10 years

    30. Disposing by Discarding Example Assume the equipment is discarded on November 30. What is the accumulated depreciation on November 30?

    31. Disposing by Discarding Example November 30, 20xx Accumulated Depreciation 20,750 Loss on disposal 15,250 Equipment 36,000 To record discarding of equipment

    32. Selling a Plant Asset Example Assume the equipment is sold for $10,000. What is the gain or loss on disposal? Cash 10,000 Accumulated Depreciation 20,750 Loss on Sale of Equipment 5,250 Equipment 36,000 To record sale of equipment for $10,000

    33. Selling a Plant Asset Example Equipment is sold for $20,000. What is the gain or loss on disposal? Cash 20,000 Accumulated Depreciation 20,750 Gain on Sale of Equipment 4,750 Equipment 36,000 To record sale of equipment for $20,000

    34. Exchanging Plant Assets Assume equipment with a cost of $36,000 and a book value of $15,250 is exchanged for new, similar equipment having a cost of $42,000 with a trade-in of $18,000 allowed. Cash payment is $24,000. What is the cost of the new asset? $24,000 + $15,250 = $39,250

    35. Exchanging Plant Assets Equipment (new) $39,250 Accumulated Depreciation (old) $20,750 Equipment (old) $36,000 Cash $24,000

    36. Objective 5 Account for natural resources

    37. Accounting for Natural Resources

    38. Objective 6 Account for intangible assets

    39. Intangible Assets

    40. Intangible Assets: Patents Patents are federal government grants. They give the holder the right to produce and sell an invention. Suppose a company pays $170,000 to acquire a patent on January 1. The company believes that its expected useful life is 5 years. What are the entries?

    41. Intangible Assets: Patents

    42. Intangible Assets: Copyrights

    43. Intangible Assets: Trademarks

    44. Intangible Assets: Franchises Franchises are privileges granted by private business or government to sell a product or service.

    45. Intangible Assets: Goodwill Goodwill is defined as the excess of purchase price over the fair value of the net assets acquired. Goodwill can only be recorded in the purchase of another company. Goodwill is no longer amortized Goodwill is now subject to an “impairment” test.

    46. Intangible Assets: Goodwill

    47. Special Issues

    48. End of Chapter 10

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