Chapter 7 In-class - with answers.xlsx - Chapter 7 Online Operating Assets line Review sets Operating Assets = noncurrent assets 3 categories 1 Property

Chapter 7 In-class - with answers.xlsx - Chapter 7 Online...

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Chapter 7 Onlin Operating Asset
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ne Review ts
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Operating Assets = noncurrent assets 3 categories: 1. Property, Plant & Equipment 2. Intangible Assets 3. Natural Resources
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Property, Plant & Equipment (PP&E) What are they? Noncurrent, tangible operating assets us Examples: Land, land improvements, bu How do we measure and record the cost of P Value recorded for PP&E includes ALL co and prepare it for its intended use. Th "capitalized" means the cost is recorde Review Exhibit 7-2 on page 332 for exam Example: company constructs its own bu Costs included in that building would i clearing the land, architectural fees, et Exercises: 1. Company buys land and builds self-storage Attorneys fees Costs to remove old building So all costs to acquire the asset and prep
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Architect fees Construction fees Advertising fees for the storage units What is the journal entry to record the Storage units (asset) Cash
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sed in the normal course of business uildings, equipment PP&E? osts necessary to acquire the asset hese are only DIRECT costs related to the asset. ed as an ASSET (instead of expense) mples of costs included uilding include attorneys fees for buying the land, costs of tc. e units. Company incurs the following costs: 250000 60000 pare it for its intended use are CAPITALIZED
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14000 25000 10000 e overall acquisition/construction of the storage un 349000 -349000
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f
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nit buildings?
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Depreciation: the process of allocating the c The idea here is that we spread the cost of th to the company Accounts used for recording depreciation: Depreciation expense (the expense acco when the asset value decreases) Accumulated depreciation (contra asset So if a company has $200 of depreciatio Depreciation expense Accumulated depreciation Two of the methods company's use to calcula 1. Straight-line (by far the most common me 2. Units-of-production - records depreciation To calculate depreciation expense under both
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1. Original cost 2. Residual (or "salvage") value 3. Estimated useful life of the asset / or estim Method 1 - straight line Step 1 - calculate the DEPRECIABLE COST (the Depreciable cost = original cost less resi Step 2 - divide the depreciable cost by the es Step 3 - divide the depreciable cost per year Method 2 - units-of-production Step 1 - calculate the DEPRECIABLE COST (the Depreciable cost = original cost less resi Step 2 - divide the depreciable cost by the es Step 3 - multiply that number by the units of What method to choose?
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Ideally, companies should use the method th Companies also factor in simplicity of the me Most companies use straight-line because it' Over time, you will still end up expensing the Note on depreciation for income taxes The IRS often allows companies to accelerate on their tax returns for taxes to incentiv But…. That does not mean companies can ac Revisions of depreciation Because the depreciable life is an estimate, t If the estimate changes significantly, simply r based on the remaining depreciable cos Exercises: Red Company (RC) purchases a truck for $20, at the end of it's useful life for $4,000. Mana
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