Final-Exam---New-Material - 1 Accounting 2001 Final Exam...

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1 Accounting 2001 Final Exam Study Guide Spring ‘07 Chapter 7 Types of Long-term Assets - Plant assets, or fixed assets, are long-lived assets that are tangible (land, equipment). The expense associated w/ plant assets is depreciation. -Land is not expensed over time because its usefulness does not decrease. - Intangible assets are useful because of the special rights they carry. They have no physical form (patents, copyrights). Accounting for intangibles is similar to plant assets. Costing of Long-term Assets -We report plant assets at historical cost, which is the price the company actually paid to acquire the asset. The cost of any asset is the sum of all the costs incurred to bring the asset to its intended use. - Land cost includes its purchase price, brokerage commission, survey fees, legal fees, and any back property taxes. It also includes expenditures for grading and clearing the land, and for demolishing old buildings. -The cost of land does not include: 1. Fencing 2. Paving 3. Security Systems 5. Lighting Land Improvements -The cost to pave a parking lot would be recorded in a separate account entitled Land Improvements. This account includes costs for things like driveways, signs, fences, and sprinkler systems. Capitalizing or Expensing -Expenditures that increase the asset’s capacity or extend its useful life are called capital expenditures. The cost is debited to the asset account. -Costs that merely maintain the asset or restore it are recorded as expenses. Record Capital Expenditures Record Expense Major engine overhaul, modification of body for new use of truck, addition to storage capacity of truck. Repair of transmission or other mechanism, Oil Change, lubrication, replacement of tires and windshield.
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2 Plant Asset Depreciation -The depreciation process matches the asset’s expense against revenue to measure income, as the matching principle directs. -Only land is not depreciated. -We must know: 1. Cost 2. Estimated Useful Life 3. Estimated Residual Value - Estimated Useful Life may be in years, units of output, or miles. - Estimated Residual Value is the expected cash value of an asset at the end of its useful life. Straight-Line Method -Where an equal amount of depreciation is assigned to each year (or period) of asset use. Cost – Residual Value = $41,000 - $1,000 Useful Life (years) 5 years JE* -Depreciation decreases the asset in Accumulated Depreciation and decreases equity through Depreciation Expense. ***An asset’s final book value is its residual value, and the asset is said to be fully depreciated*** Units-of-Production Method -A fixed amount of depreciation is assigned to each unit of output produced by the asset. Cost – Residual Value = $41,000 - $1,000 = $0.40/mile Useful life, in units of production 100,000 miles -This per-unit depreciation expense is now multiplied by the number of units produced each period to compute depreciation. Double-Declining-Balance Method
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This note was uploaded on 01/16/2012 for the course ECON 2000 taught by Professor Roussell during the Fall '06 term at LSU.

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Final-Exam---New-Material - 1 Accounting 2001 Final Exam...

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