chapter8notes

chapter8notes - LONG-TERM ASSETS I LONG-TERM TANGIBLE...

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LONG-TERM ASSETS I. LONG-TERM TANGIBLE ASSETS A. 2 Categories: 1. Non-Depreciable Assets - Land - Not "used up" over time. Do not depreciate! 2. Depreciable Assets - Plant and Equipment with limited useful lives. Allocate cost of asset to expense over time using depreciation. B. Acquisition Cost : All costs incurred to bring the asset into its productive capacity. 1. Land - purch. price + commissions + taxes due + any land preparation costs - proceeds from salvage 2. Land Improvements - improvements the company must maintain with limited useful lives 3 . Buildings - construction costs + construction financing costs (interest) 4. Equipment = invoice price + transportation in + installation costs + trial runs
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On March 1, Roy Orbis Co. acquired real estate, on which it planned to construct a small office building, by paying $100,000 in cash. An old warehouse on the property was razed at a cost of $6,600; the salvaged materials were sold for $1,700. Additional expenditures before construction began included $1,100 attorney's fee for work concerning the land purchase, $4,000 real estate broker's fee, $7,800 architect's fee, and $14,000 to put in driveways and a parking lot. Required: Determine the amount to be reported as the cost of the land.
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C. Lump Sum Purchases: Purchase group of assets for one lump sum price. Must allocate purchase price to each asset acquired to determine its historical cost by either: 1. FMV - or 2. Weighted average of appraisal values (FMV) Smith Co. paid $100,000 to acquire land, building, and equipment. At the time of the acquisition, appraisal values for the individual assets were determined as: land, $30,000; building, $60,000; and equipment, $30,000. What cost should be allocated to the land, building and equipment, respectively?
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II. DEPRECIATION Process of charging the cost of an asset to expense over its useful life. Purpose:
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chapter8notes - LONG-TERM ASSETS I LONG-TERM TANGIBLE...

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