Mgmt 200 Spring 2010 Chap 8 PP&E

Mgmt 200 Spring 2010 Chap 8 PP&E - Property, Plant,...

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Property, Plant, and Equipment Chapter 8
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Long-term operating assets Property, Plant, and Equipment (Tangible assets) Natural resources (e.g. mineral resources) Intangible assets: Patents, copyrights, etc Specialized assets (e.g. Films)
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Long-term operating assets Measurement of cost Historical cost Post acquisition expenditures Record cost of using Allocation of cost Alternative allocation methods Depreciation expense Book value = Cost – Accumulated depreciation Disposal of assets Gain or loss on disposal
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Measurement of cost Acquisition costs Legal fees, shipping costs, installation costs Renovation expenditures Self-constructed assets Capitalized interest Payment other than cash Shares of stock Exchanges Basket Purchases Allocation to individual assets (Fair values) Post-acquisition costs Ordinary repairs and Maintenance Additions and improvements
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Problem 8-1: Lump-Sum Purchase of Assets and Subsequent Events Carter Development Company purchased, for cash, a large tract of land that was immediately platted and deeded into smaller sections: Section 1, retail development with highway frontage Section 2, Multifamily apartment development Section 3, single-family homes in the largest section Based on recent sales of similar property, the fair market values of the three sections are as follows: Section 1, $630,000 Section 2, $378,000 Section 3, $252,000 Required 1.What value is assigned to each section of land if the tract was purchased for (a) $1,260,000, (b) $1,560,000, or (c) $1,000,000? 2.How does the purchase of the tract affect the balance sheet? 3.Why would Carter be concerned with the value assigned to each section? Would Carter be more concerned with the values assigned if instead of purchasing three sections of land, it purchased land with buildings? Why or why not?
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Early in its first year of business, Toner Company, a fitness and training center, purchased new workout equipment. The acquisition cost included the following costs: Purchase price $150,000 Tax 15,000 Transportation 4,000 Setup* 25,000 Painting* 3,000 * The equipment was adjusted to Toner’s specific needs and painted to match the other equipment in the gym.
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Mgmt 200 Spring 2010 Chap 8 PP&E - Property, Plant,...

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