Powerpoints_Chapter_7

Powerpoints_Chapter_7 - Chapter 7 Objectives Describe the...

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Chapter 7 – Objectives Describe the different types of operating assets Identify the costs of acquiring operating assets Classify asset expenditures as either capital expenditures or revenue expenditures Compute straight-line, units of production and double-declining balance depreciation expense for plant and equipment Describe the purpose of amortization expense for intangible assets Describe the reporting of the impairment of operating assets Calculate gain/loss on sale/disposition of plant and equipment Calculate and interpret ratios related to operating assets
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Management Decision Cycle FINANCING DECISIONS INVESTING DECISIONS OPERATING DECISIONS FUNDING OPERATING PROFIT INVESTMENTS
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Investing and Operating Decisions Purchase land, buildings and Equipment Business capital (Funding) Purchase supplies and materials Purchase services Pay employees Investing Operating
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Understanding Operating Assets 4 Long-lived assets used in normal operations to generate revenue Held until service potential exhausted Three categories: 1. Property, plant and equipment Tangible assets (e.g. land, buildings, equipment) 2. Intangibles Legal and contractual rights without physical substance (e.g. patents, copyrights, trademarks, licenses, goodwill) 3. Natural resources Tangible assets (e.g. timberlands, coal, oil)
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Operating Assets in Relation to Total Assets
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Measuring Cost of a Fixed Asset Cost principle Record fixed asset at historical cost Cost--any expenditure necessary to acquire the asset and to prepare asset for use “Capitalize” expenditures included in cost of asset Immediately “expense” expenditures not included in cost of asset 6
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Recording the Cost of a Fixed Asset Historical Cost principle requires recording fixed assets at the exchange price at the time the asset is purchased Cash paid in exchange for an asset Can also be purchased by issuing debt In this situation, the asset is valued at the fair value of the liability on the date the asset is acquired. Non-cash consideration, such as land or other noncash assets, may be given in exchange for an asset The purchase price of the acquired asset is the fair value of the asset given up or the fair value of the asset received, whichever is more clearly determinable.
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Typical Costs of Acquiring PP&E
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9 HOW TO Measure and Record the Cost of a Fixed Asset
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On June 29, 2009, Drew Company acquired a new automatic milling machine from Dayton, Inc. Drew paid $20,000 in cash and signed a one- year, 10 percent note for $80,000 Following the purchase, Drew incurred freight charges on account of $2,900 After the machine arrived, Drew paid J.B. Contractors $5,300 for installation
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This note was uploaded on 12/05/2011 for the course ACC 210 taught by Professor Staff during the Fall '07 term at N.C. State.

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Powerpoints_Chapter_7 - Chapter 7 Objectives Describe the...

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