Chapter 10_Lecture_Summer_2010

Chapter 10_Lecture_Summer_2010 - Chapter 10 Study...

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1. Describe how the cost principle applies to plant assets. 2. Explain the concept of depreciation. 3. Compute periodic depreciation using different methods. 4. Describe the procedure for revising periodic depreciation. 5. Distinguish between revenue and capital expenditures, and explain the entries for each. 6. Explain how to account for the disposal of a plant asset. 7. Compute periodic depletion of natural resources. 8. Explain the basic issues related to accounting for intangible assets. 9. Indicate how plant assets, natural resources, and intangible assets are reported. Chapter 10 Study Objectives Chapter 10 Study Objectives
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“Used in operations” and not for resale. Long-term in nature and usually depreciated. Possess physical substance. Plant assets include land, land improvements, buildings, and equipment (machinery, furniture, tools). Major characteristics include: Section 1 – Section 1 – Plant Assets Plant Assets Referred to as property, plant, and equipment; plant and equipment; and fixed assets.
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Includes all costs to acquire land and ready it for use. Costs typically include: Land Determining the Cost of Plant Assets Determining the Cost of Plant Assets (1) the purchase price; (2) closing costs, such as title and attorney’s fees; (3) real estate brokers’ commissions; (4) costs of grading, filling, draining, and clearing; (5) assumption of any liens, mortgages, or encumbrances on the property.
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Includes all expenditures necessary to make the improvements ready for their intended use. Land Improvements Determining the Cost of Plant Assets Determining the Cost of Plant Assets Examples are driveways, parking lots, fences, landscaping, and underground sprinklers. Limited useful lives. Expense (depreciate) the cost of land improvements over their useful lives.
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Includes all costs related directly to purchase or construction. Buildings Purchase costs: Purchase price, closing costs (attorney’s fees, title insurance, etc.) and real estate broker’s commission. Remodeling and replacing or repairing the roof, floors, electrical wiring, and plumbing. Construction costs: Contract price plus payments for architects’ fees, building permits, and excavation costs. Determining the Cost of Plant Assets Determining the Cost of Plant Assets
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E10-3 E10-3 On March 1, 2008, Penner Company acquired real estate on which it planned to construct a small office building. The company paid $80,000 in cash. An old warehouse on the property was razed at a cost of $8,600; 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, $5,000 real estate broker’s fee, $7,800 architect’s fee, and $14,000 to put in driveways and a parking lot. Instructions
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Chapter 10_Lecture_Summer_2010 - Chapter 10 Study...

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