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Lecture%207%20Accounting%20for%20Long-term%20Assets

Lecture%207%20Accounting%20for%20Long-term%20Assets -...

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Accounting for Long-term Assets Lecture 7
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Long-lived assets acquired for use in business operations. Long-lived assets acquired for use in business operations. Similar to long-term prepaid expenses The cost of plant assets is the advance purchase of services. Date Description Debit Credit As years pass, and the services are used, the cost is transferred to depreciation expense .
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Major Categories Major Categories Land, buildings, equipment, furniture, fixtures. Long-term assets having physical substance. Tangible Plant Assets Patents, copyrights, trademarks, franchises, goodwill. Noncurrent assets with no physical substance. Intangible Assets Oil reserves, timber, other minerals. Sites acquired for extracting valuable resources. Natural Resources
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1. Acquisition. 2. Allocation of the acquisition cost to expense over the asset’s useful life (depreciation). 3. Sale or disposal. 1. 1. Acquisition. Acquisition. 2. 2. Allocation of the acquisition cost to Allocation of the acquisition cost to expense over the asset expense over the asset s useful life s useful life (depreciation). (depreciation). 3. 3. Sale or disposal. Sale or disposal. Accountable Events Accountable Events
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To determine the cost of plant assets.
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Asset price Asset price . . . for getting the asset to the desired location. . . . for getting the asset to the desired location. . . . for getting the asset ready for use. . . . for getting the asset ready for use. Cost Cost Acquisition of Plant Assets Acquisition of Plant Assets = Reasonable and necessary costs . . . Reasonable and necessary costs . . . +
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On May 4, Heat Co., a stove maker, buys a new machine from Supply Co. The new machine has a price of $52,000. Sales tax is 8%. Heat Co. pays $500 shipping cost to get the machine to its plant. After the machine arrives, set-up costs of $1,300 are incurred, along with $4,000 in testing costs. Compute the cost of Heat Co.’s new machine. On May 4, Heat Co., a stove maker, buys a new On May 4, Heat Co., a stove maker, buys a new machine from Supply Co. The new machine machine from Supply Co. The new machine has a price of $52,000. Sales tax is 8%. has a price of $52,000. Sales tax is 8%. Heat Co. pays $500 shipping cost to get the Heat Co. pays $500 shipping cost to get the machine to its plant. After the machine arrives, machine to its plant. After the machine arrives, set set - - up costs of $1,300 are incurred, along with up costs of $1,300 are incurred, along with $4,000 in testing costs. $4,000 in testing costs. Compute the cost of Heat Co. Compute the cost of Heat Co. s new machine. s new machine. Determining Cost Determining Cost
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List price 52,000 $ Sales tax ($52,000 × 8%) 4,160 Transportation cost 500 Set-up 1,300 Testing 4,000 Total cost to Heat Co. 61,960 $ List price 52,000 $ Sales tax ($52,000 × 8%) 4,160 Transportation cost 500 Set-up 1,300 Testing 4,000 Total cost to Heat Co. 61,960 $ Determining Cost Determining Cost Date Description Debit Credit May 4 Machine 61,960 Cash 61,960
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The allocation of the cost of a plant asset to expense in the periods in which services are received from the asset.
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