Chap008wildtextbook

Office furniture and equipment 175000 land

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Office furniture and equipment 175,000 Land improvements 50,000 Total 575,000 $ Less Accumulated depreciation (122,000) Net property, plant, and equipment 453,000 $ 8-25
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Additional Expenditures If the amounts involved are not material, most companies expense the item. Treatment Statement Expense Income Taxes Capital Balance sheet Expenditure account debited Deferred Higher Higher Revenue Income statement Currently Expenditure account debited recognized Lower Lower (amount expensed not capitalized) 8-26
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Capital versus Expense Type of Capital or Expenditure Expense Identifying Characteristics Ordinary Expense 1. Maintains normal operating condition. Repairs 2. Does not increase productivity. 3. Does not extend life beyond original estimate. Capital 1. Major overhauls or partial replacements. 2. Extends life beyond original estimate. Betterments and Extraordinary Repairs 8-27
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Recording cash received (debit) or paid (credit). Removing accumulated depreciation (debit). Update depreciation to the date of disposal. Journalize disposal by: Removing the asset cost (credit). Recording a gain (credit) or loss (debit). Disposals of Plant Assets 8-28
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Update depreciation to the date of disposal. Journalize disposal by: If Cash > BV, record a gain (credit). If Cash < BV, record a loss (debit). If Cash = BV, no gain or loss. Discarding Plant Assets Recording cash received (debit) or paid (credit). Removing accumulated depreciation (debit). Removing the asset cost (credit). Recording a gain (credit) or loss (debit). 8-29
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Disposal of Assets Annual Depreciation ($100,000 - $20,000) ÷ 10 Yrs. = $8,000 Depreciation to September 30, 2011:9/12 × $8,000 = $6,000 Dr. Cr. Sep. 30 Depreciation expense 6,000 Accumulated Depreciation - Machine 6,000 To update depreciation to date of disposal On September 30, 2011, Evans Company sells a machine that originally cost $100,000 for $60,000 cash. The machine was placed in service on January 1, 2009. It was depreciated using the straight-line method with an estimated salvage value of $20,000 and a useful life of 10 years. 8-30
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Determine Book Value of Asset Cost 100,000 $ Accumulated Depreciation: ( 3 yrs. × $8,000) + $6,000 = 30,000 Book Value 70,000 $ 8-31
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Determine Gain or Loss on Disposal Cost 100,000 $ Accumulated depreciation 30,000 Book Value 70,000 Cash Received 60,000 Loss on disposal (10,000) $ If Cash > BV, record a gain (credit). If Cash < BV, record a loss (debit). If Cash = BV, no gain or loss. 8-32
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Record the Disposal in the Journal Dr. Cr. Sep. 30 Cash 60,000 Accumulated Depreciation - Machine 30,000 Loss on Disposal of Asset 10,000 Machine 100,000 To record disposal of equipment 8-33
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Physically consumed when used Natural Resources Wasting Assets Natural Resources 8-34
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o Oil & Gas Fields o Coal Mines o Standing Timber o Mineral Deposits n Record at current cost, including all expenditures to acquire the asset and prepare it for use n Depletion recorded as the natural resource is consumed Cost Determination and Depletion 8-35
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Noncurrent assets without physical substance.
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