Test 4 - Chapter 9 Assets acquired by Leasing you dont know...

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Chapter 9 Assets acquired by Leasing – you don’t know the item therefore you do not record it Property, plant and equipment – tangible, long lived assets acquired for use in business operation ex. Land, buildings Intangible assets – long lived assets without physical substance that are used in business ex. Licenses, patents, franchises and good will Two parties of leasing – lessee, lessor (owner) What else can go into the cost of assets? All costs that get the assets ready, ex. Insurance, shipping… Four conditions of leasing ( a) if the lease life exceeds 75% of the life of the asset (b) if there is a transfer of ownership to the lessee at the end of the lease term (c) if there is an option to purchase the asset at a "bargain price" at the end of the lease term. (d) if the present value of the lease payments, discounted at an appropriate discount rate, exceeds 90% of the fair market value of the asset. What are the two types of lease can a business have? Operation lease, and capital lease Basket purchase Assets Fair market value % Apportionment Building 3,000,000 3,000,000/4,000,000 = 75% .75x3,600,000 = 2,700,000 Land 1,000,000 1,000,000/4,000,000 = 25% .25x3,600,000 = 900,000 Total 4,000,000 100% 3,600,000 Journal entry Building 2,700,000 Land 900,000 Cash 3,600,000 P.387 Depreciation Original cost = purchase + transportation cost + (sales tax) + insurance + installation cost Estimated useful life Estimated its salvage value – the amount expected to be received when an asset is sold Methods to calculate depreciation 1. Units of production method = cost – salvage value / total estimated life in units, hours, or miles x number of units produced
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This note was uploaded on 09/28/2011 for the course ACC 111 taught by Professor Caprio during the Summer '11 term at Mercer County Community College.

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Test 4 - Chapter 9 Assets acquired by Leasing you dont know...

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