Chapter 8-Solutions to Exercises and Problems

Chapter 8-Solutions to Exercises and Problems - Chapter 8...

Info icon This preview shows pages 1–3. Sign up to view the full content.

Chapter 8 Reporting and Analyzing Long-Term Assets QUESTIONS 1. A plant asset is tangible; it is used in the production or sale of other assets or services; and it has a useful life longer than one accounting period. 2. The cost of a plant asset includes all normal and reasonable expenditures necessary to get the asset in place and ready for its intended use. 3. Land is an asset with an unlimited life and, therefore, is not subject to depreciation. Land improvements have limited lives and are subject to depreciation. 4. Often the lump-sum or basket purchase includes assets with different lives that must be depreciated separately. Sometimes the purchase may include land, which is never depreciated. 5. The Accumulated Depreciation—Machinery account is a contra asset account with a credit balance that cannot be used to buy anything. The balance of the Accumulated Depreciation—Machinery account reflects that portion of the machinery's original cost that has been charged to depreciation expense. It also gives some indication of the asset’s age and how soon it will need to be replaced. Any funds available for buying machinery are shown on the balance sheet as liquid assets with debit balances. 6. The Modified Accelerated Cost Recovery System is not generally acceptable for financial accounting purposes because it allocates depreciation over an arbitrary period that is usually much shorter than the predicted useful life of the asset. 7. The materiality principle justifies charging low-cost plant asset purchases to expense because such amounts are unlikely to impact the decisions of financial statement users. 8. Ordinary repairs are made to keep a plant asset in normal, good operating condition, and should be charged to expense of the current period. Extraordinary repairs are made to extend the life of a plant asset beyond the original estimated life; they are recorded as capital expenditures (and added to the asset account). 9. A company might sell or exchange an asset when it reaches the end of its useful life, or if it becomes inadequate or obsolete, or if the company has changed its business plans. An asset also can be damaged or destroyed by fire or some other accident that would require its disposal. 10. The process of allocating the cost of natural resources to expense over the periods when they are consumed is called depletion. The method to compute depletion is similar to units-of-production depreciation.
Image of page 1

Info icon This preview has intentionally blurred sections. Sign up to view the full version.

11. No, depletion expense should be calculated on the units that are extracted (similar to the units-of-production basis) and sold. 12. An intangible asset: (1) has no physical existence; (2) derives value from the unique legal and contractual rights held by its owner; and (3) is used in the company’s operations.
Image of page 2
Image of page 3
This is the end of the preview. Sign up to access the rest of the document.

{[ snackBarMessage ]}

What students are saying

  • Left Quote Icon

    As a current student on this bumpy collegiate pathway, I stumbled upon Course Hero, where I can find study resources for nearly all my courses, get online help from tutors 24/7, and even share my old projects, papers, and lecture notes with other students.

    Student Picture

    Kiran Temple University Fox School of Business ‘17, Course Hero Intern

  • Left Quote Icon

    I cannot even describe how much Course Hero helped me this summer. It’s truly become something I can always rely on and help me. In the end, I was not only able to survive summer classes, but I was able to thrive thanks to Course Hero.

    Student Picture

    Dana University of Pennsylvania ‘17, Course Hero Intern

  • Left Quote Icon

    The ability to access any university’s resources through Course Hero proved invaluable in my case. I was behind on Tulane coursework and actually used UCLA’s materials to help me move forward and get everything together on time.

    Student Picture

    Jill Tulane University ‘16, Course Hero Intern