Ch+09+Edited

Determine amount to be reported as the cost of the

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Unformatted text preview: ash price of property ($100,000) $100,000 Net removal cost of warehouse ($6,000) 6,000 Attorney's fees ($1,000) 1,000 Real estate broker’s commission ($8,000) 8,000 Cost of Land Chapter 9- 9 $115,000 SO 1 Describe how the cost principle applies to plant assets. Determining the Cost of Plant Assets Determining the Cost of Plant Assets Land Improvements Includes all expenditures necessary to make the improvements ready for their intended use. Limited useful lives. Chapter 9-10 Examples: driveways, parking lots, fences, landscaping, and underground sprinklers. Expense (depreciate) the cost of land improvements over their useful lives. SO 1 Describe how the cost principle applies to plant assets. Determining the Cost of Plant Assets Determining the Cost of Plant Assets Buildings Includes all costs related directly to purchase or construction. Purchase costs: Purchase price, closing costs (attorney’s fees, title insurance, etc.) and real estate broker’s commission. Remodeling and replacing or repairing the roof, floors, electrical wiring, and plumbing. Construction costs: Chapter 9-11 Contract price plus payments for architects’ fees, building permits, and excavation costs. SO 1 Describe how the cost principle applies to plant assets. Determining the Cost of Plant Assets Determining the Cost of Plant Assets Equipment Include all costs incurred in acquiring the equipment and preparing it for use. Costs typically include: Sales taxes. Freight charges. Insurance during transit paid by the purchaser. Chapter 9-12 Cash purchase price. Expenditures required in assembling, installing, and testing the unit. SO 1 Describe how the cost principle applies to plant assets. Determining the Cost of Plant Assets Determining the Cost of Plant Assets Illustration: Lenard Company purchases a delivery truck at a cash price of $22,000. Related expenditures are sales taxes $1,320, painting and lettering $500, motor vehicle license $80, and a three-year accident insurance policy $1,600. Compute the cost of the delivery truck. Truck Cash price $22,000 Sales taxes 1,320 Painting and lettering Cost of Delivery Truck Chapter 9-13 500 $23,820 SO 1 Describe how the cost principle applies to plant assets. Determining the Cost of Plant Assets Determining the Cost of Plant Assets Illustration: Lenard Company purchases a delivery truck at a cash price of $22,000. Related expenditures are sales taxes $1,320, painting and lettering $500, motor vehicle license $80, and a three-year accident insurance policy $1,600. Prepare the journal entry to record these costs. Equipment 23,820 License expense Prepaid insurance Cash Chapter 9-14 80 1,600 25,500 SO 1 Describe how the cost principle applies to plant assets. Determining the Cost of Plant Assets Determining the Cost of Plant Assets To Buy or Lease? A lease is a contractual agreement in which the owner of an asset (lessor) allows another party (lessee) to use the asset for a period of time at an agreed price. Some advantages of leas...
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This note was uploaded on 09/27/2013 for the course MGT 11A taught by Professor Armstrong during the Fall '08 term at UC Davis.

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