CHAPTER F11 - CHAPTER F11: INVESTING ACTIVITIES I. Types of...

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CHAPTER F11: INVESTING ACTIVITIES I. Types of Assets A. Investing activities supply the resources that an organization needs in order to operate. 1. Companies report those assets for which it can reasonably identify costs and that are important to its operations on its balance sheet. Exhibit 1 provides the asset section of the balance sheet for Mom’s Cookie Company. 2. Some resources, like human resources, a company needs to operate but they are not reported on the balance sheet. B. Most companies divide their assets into two major categories: current and long-term. 1. Current assets are those that management expects to convert to cash or consume during the coming fiscal year. 2. Long-term assets include assets a company uses to produce and sell its products. These assets provide benefits to a company that extend beyond the coming fiscal year. a. Long-term investments are investments in debt or equity securities issued by other companies. b. Property, plant, and equipment includes investments in tangible assets, such as equipment, buildings, and land, that a company intends to use in the future to sell or produce its products. c. Intangible assets are those that provide legal rights or benefits to a company and include patents, copyrights, trademarks, and goodwill. d. Other assets include miscellaneous resources that are important to a particular company and may include long-term receivables, long-term prepaid assets, buildings and equipment that a company is attempting to sell, and natural resources. II. Property, Plant, and Equipment A. Plant assets include the land, buildings, and equipment a company uses in its operating activities. 1. The transactions associated with plant assets include their purchase and disposal and their valuation on the balance sheet at the end of each fiscal period. 2. The purchase and disposal of plant assets are recorded at cost. 3. Plant assets are reported on the balance sheet at cost less accumulated depreciation. 4. Land does not depreciate because it is not consumed. B. Plant Asset Cost 1. The cost of plant assets includes the amount paid for the assets plus the cost of transportation, site preparation, installation, and any construction necessary to make the assets usable for their intended purpose. 2. The cost of property must be separated into its components: land, building and equipment, since the land is not depreciated. 3.
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Expenditures made to acquire new plant assets or to extend the life or enhance the value of existing plant assets are known as capital expenditures and are recorded as assets. 4. Expenditures to repair or maintain plant assets that do not extend the life or enhance the value of the assets are known as operating expenditures and are recorded as expenses in the period incurred.
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CHAPTER F11 - CHAPTER F11: INVESTING ACTIVITIES I. Types of...

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