Chapter 9 Outline

Chapter 9 Outline - Chapter Nine Accounting for Long-Term...

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Chapter Nine Accounting for Long-Term Operational Assets I. Chapter Opening a. Companies use assets to produce revenue. i. Current Assets 1. Inventory or Office Supplies. 2. Used relatively quickly. (within a single accounting period) ii. Long Term Operational Assets 1. Equipment or Buildings 2. Used for an extended period of time. (two or more accounting periods) II. Tangible Versus Intangible Assets a. Tangible Long Term Assets i. Have physical presence; they can be seen and touched. ii. Classified as: 1. Property, plant, and equipment. a. Sometimes called plant assets or fixed assets. b. Ex: i. Furniture ii. Cash Registers iii. Machinery iv. Delivery Trucks v. Computers vi. Mechanical Robots vii. Buildings c. The level of detail used to account for these assets varies. d. The term used to recognize expense for property, plant, and equipment is depreciation. 2. Natural Resources a. Ex: i. Mineral Deposits ii. Oil and Gas Reserves iii. Timber Stands iv. Coal Mines v. Stone Quarries b. Inventories c. When sold, the cost is frequently expensed as cost of goods sold. d. Although inventories are usually classified as short-term assets, natural resources are normally classified as long term because the resource deposits generally have long lives. e. Term used to recognize expense for natural resources is depletion. 3. Land a. Classified separately from other property because land is not subject to depreciation or depletion.
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b. Land has an infinite life. It is not worn out or consumed as it is used. c. When buildings or natural resources are purchased simultaneously with land, the amount paid must be divided between land and the other asset because of the nondepreciable nature of land. b. Intangible Assets i. Have no physical form. ii. Represented by physical documents. iii. Rights or privileges. iv. Cannot be seen and touched. v. Ex. Patents 1. Represents an exclusive legal privilege to produce and sell a particular product. 2. Protects inventors by making it illegal for others to profit by copying their inventions. vi. Fall into two categories: 1. Identifiable Useful Lives a. Includes patents and copyrights. b. May become obsolete or reach the end of their legal lives. c. The term used when recognizing expense for intangible assets with identifiable useful lives is called amortization. 2. Indefinite Useful Lives a. Benefits extend so far into the future that their useful lives cannot be estimated. b. Ex. i. Renewable franchises. ii. Trademarks iii. Goodwill c. Have indefinite useful lives. d. The costs are not expensed unless the value of the assets becomes impaired. III. Determining the Cost of Long Term Assets a. Historical Cost Concept i. Requires that an asset be recorded at the amount paid for it. ii.
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Chapter 9 Outline - Chapter Nine Accounting for Long-Term...

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