Financial Act Chpt 9 Notes - Chapter 9 Reporting Property...

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Chapter 9 Reporting Property, Plant, & Equipment, Natural resources and Intangibles Long Lived Assets: Assets that are considered noncurrent assets on the balance sheet, and the company will use as productive resources for an extended period of time. Two types: Tangible assets: Assets you can touch' Normally referred to as Property, Plant and Equipment (PP&E) o Land: Must be land used in normal operations. Only asset that is NEVER depreciated. a Land Improvements: Improvements made to land (such as fencing, paving, etc.) that ARE depreciated. • Buildings, Fixtures, and Equipment: Must be used in operations. Building can include things added to the building, such as leasehold improvements, etc. Equipment includes things like computers, printers, desks, etc. • Natural resources: Must be used in operations, for companies that own natural resources such as oil companies. Intangible assets: Assets that cannot be touched! Examples include things like copyrights, patents, trademarks, etc. Recorded at acquisition cost on the balance sheet. Acquisition Cost: Net cash (or cash equivalent) paid for an asset. Includes all costs to get the asset ready for its intended use. Asset can be purchased using cash, using debt, or using equity. Example: Cainas Cookies decides to purchase a delivery van, in order to deliver specialty cookie baskets around the Tampa Bay area. The cost of the van was $20,000, and sales tax was $140. She then has custom cabinets built into the van, to help keep the cookie baskets secure when they are being transported, for a cost of $2,000. On her first delivery, Cainas had a flat tire and had to replace it at a cost of $200. During the first year of operations, she maintains the van (oil change, tire rotation, etc) at a cost of $300. What amount should be capitalized on the balance sheet as "Equipment"? Delivery Van: $22,140 ($20,000 + $140+ $2,000) Only costs that get it ready for its intended use in operations! Repairs and maintenance costs (tire replaced, oil changes, etc) are period costs and expensed on the income statement as these expenses are incurred. (Matching principle) Capitalized Interest: Cost that is capitalized if a company decides to construct its own asset. All costs associated with building the project (including any interest incurred on money borrowed to fund the project). Interest is capitalized when the interest is PAID! Example: Cainas Cookies expands and decides to purchase land and build its own commercial kitchen space to run its operations. Purchase price for the land was $100,000. Cainas hired a builder and built a commercial kitchen with warehouse space at a total cost of $500,000. Once it was built, she hired a specialty kitchen distributor to add specialized vents in the kitchen, (to help regulate the temperature when the cookies are baking) at a cost of $5,000. She paved a portion of the land for a parking lot, and installed lighting around the lot for a cost of $10,000. During the first year of operations, she had the
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