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Unformatted text preview: Ch. 9: Property, Plant, &amp; Equipment 1 Chapter 9 Property, Plant, and Equipment In this chapter you will learn how property, plant, and equipment affect businesses, how they are controlled, accounted for, and reported in financial statements. What Are Property, Plant, and Equipment? Property, plant, and equipment are resources with lives longer than one year, used in normal business operations, and which provide benefits through their physical form. Examples of property, plant, and equipment owned by merchandising companies are automobiles used by salespersons, delivery trucks, buildings in which stores operate, land (on which buildings are located), office furniture and equipment (such as desks, chairs, and computers), and store equipment (such as lights, display counters, and sales terminals). Property, plant, and equipment are major parts of a large category of resources known as long-lived assets . As the name implies, long-lived assets are resources with lives greater than one year. Other long-lived assets that are not considered property, plant, and equipment are investments and intangible assets . Investments are resources owned primarily for their expected increase in value. For example, a company might purchase shares of stock of another company with the hope the stock price will increase. Other examples of investments are land or buildings held for resale, not held for use in the company. Because property, plant, and equipment provide benefits through their physical form, they are examples of tangible assets. Some long-lived assets, such as copyrights, trademarks, and patents, are valuable because they provide legal benefits, not physical benefits. For example, you cannot drive around town in a copyright, but it does protect your company from other companies selling computer software your company developed. Resources that provide benefits in non- physical form are called intangible assets . In terms of the accounting equation, property, plant, and equipment are assets, as shown below. The numbers in parentheses refer to the chapters in which the items are discussed. Assets Current Assets Cash and cash equivalents (6) Accounts receivable (7) Allow. for Uncoll. Accts. (7) Merchandise inventory (8) Property, plant, and Equipment (9) = Liabilities + Stockholders' Equity Revenues Sales (7) Sales Ret. &amp; Allow. (7) Cost of Goods Sold (8) Operating Expenses Uncoll. Accts. Exp. (7) Bank Service Expense (6) Other Revenues &amp; Expenses Interest Revenue (6) Interest Expense (6) The amount of property, plant, and equipment differs from company to company. Exhibit 9-1 presents property, plant, and equipment for three merchandising companies and compares them to the companies' total assets. As the data show, there are many differences among the companies, but in most cases property, plant, and equipment represent a large portion of the companies' assets....
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- Spring '11
- Financial Accounting