Lecture8_students - Chapter 8 Reporting and Interpreting Property Plant and Equipment Natural Resources and Intangibles Classifying Long-Lived

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Chapter 8: Reporting and Interpreting Property, Plant and Equipment; Natural Resources; and Intangibles .
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Tangible Physical Substance Intangible No Physical Substance Expected to Benefit Future Periods Actively Used in Operations Classifying Long-Lived Assets
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Recording Acquisition Cost Acquisition costs Costs spent to make the assets to be ready to be used; Purchase price Sales tax, legal fees, title fee, shipping fee Set up costs Testing, safety installation Generally, interest charges are typically not included in acquisition cost except when the assets are self- constructed.
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Buildings Purchase price Renovation and repair costs Legal and realty fees Title fees Equipment Purchase price Installation costs Modification to building necessary to install equipment Transportation costs Land Purchase price Sales commissions Title search and transfer fees Delinquent taxes Surveying and appraisal fees any costs to get the land ready to be built on (demolish old buildings, trees, grave the land) etc; Land is not depreciable.
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Means of acquiring long-lived assets Cash Exchange using debt, equity or noncash equivalent By construction Basket purchase
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On January 1, Southwest Air Lines purchased aircraft for $70,000,000 cash. GENERAL JOURNAL Page 8 Date Description Debit Credit Jan. 1 Measuring and Recording Acquisition Cost Acquisition for Cash On January 14, Southwest Air Lines purchased aircraft for $1,000,000 cash and a $69,000,000 note payable. Acquisition for Debt GENERAL JOURNAL Page 9 Date Description Debit Credit Jan. 14
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Acquisition for Noncash Consideration Record at the current market value of the consideration given, or the current market value of the asset acquired, whichever is more clearly evident. On July 7, Southwest gave Boeing 9,000,000 shares of $1.00 par value common stock with a market value of $5.00 per share plus $25,000,000 in cash for aircraft. GENERAL JOURNAL Page 10 Date Description Debit Credit July 7
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Acquisition by Construction Asset cost includes: All materials and labor traceable to the construction. A reasonable amount of overhead. Interest on debt incurred during the construction.
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Repairs, Maintenance, and Additions Ordinary expenditures Main the productive capacity of the asset Recorded as expense Capital expenditures Increase the life of assets Increase output of assets Increase # of quantity unit produced Recorded as assets
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Financial Statement Effect Current Current Treatment Statement Expense Income Taxes Capital Expenditure Revenue Expenditure Repairs, Maintenance, and Additions To solve this problem, many companies have policies regarding the expensing of all expenditures below a certain amount according to the materiality constraint .
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In class worksheet Note: US GAAP requires that all costs incurred to get an asset ready for its intended use must be added to that asset’s account. Note also that expenditures which are
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This note was uploaded on 05/10/2011 for the course ACCT 1002 taught by Professor Ng during the Spring '11 term at National University of Singapore.

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Lecture8_students - Chapter 8 Reporting and Interpreting Property Plant and Equipment Natural Resources and Intangibles Classifying Long-Lived

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