Determining the Cost of Plant Assets LO 1 9 14 Includes all costs related

Determining the cost of plant assets lo 1 9 14

This preview shows page 13 - 21 out of 62 pages.

Determining the Cost of Plant Assets LO 1
Image of page 13
9-14 Includes all costs related directly to purchase or construction. Buildings 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: Contract price plus payments for architects’ fees, building permits, and excavation costs. Determining the Cost of Plant Assets LO 1
Image of page 14
9-15 Include all costs incurred in acquiring the equipment and preparing it for use. Costs typically include: Equipment Cash purchase price. Sales taxes. Freight charges. Insurance during transit paid by the purchaser. Expenditures required in assembling, installing, and testing the unit. Determining the Cost of Plant Assets LO 1
Image of page 15
9-16 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 Sales taxes Painting and lettering 500 1,320 $22,000 $23,820 Cost of Delivery Truck Determining the Cost of Plant Assets LO 1 Illustration 9-4
Image of page 16
9-17 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 80 Prepaid Insurance 1,600 Cash 25,500 Determining the Cost of Plant Assets LO 1
Image of page 17
9-18 Process of cost allocation , not asset valuation . Applies to land improvements, buildings, and equipment, not land . Depreciable because the revenue-producing ability of asset will decline over the asset’s useful life. Process of allocating to expense the cost of a plant asset over its useful (service) life in a rational and systematic manner. Depreciation Plant Assets LO 2
Image of page 18
9-19 Factors in Computing Depreciation Illustration 9-6 Depreciation Helpful Hint Depreciation expense is reported on the income statement. Accumulated depreciation is reported on the balance sheet as a deduction from plant assets. Helpful Hint Depreciation expense is reported on the income statement. Accumulated depreciation is reported on the balance sheet as a deduction from plant assets. Alternative Terminology Another term sometimes used for salvage value is residual value. Alternative Terminology Another term sometimes used for salvage value is residual value. LO 2
Image of page 19
9-20 Management selects the method it believes best measures an asset’s contribution to revenue over its useful life. Depreciation Methods Examples include: 1. Straight-line method.
Image of page 20
Image of page 21

You've reached the end of your free preview.

Want to read all 62 pages?

What students are saying

  • Left Quote Icon

    As a current student on this bumpy collegiate pathway, I stumbled upon Course Hero, where I can find study resources for nearly all my courses, get online help from tutors 24/7, and even share my old projects, papers, and lecture notes with other students.

    Student Picture

    Kiran Temple University Fox School of Business ‘17, Course Hero Intern

  • Left Quote Icon

    I cannot even describe how much Course Hero helped me this summer. It’s truly become something I can always rely on and help me. In the end, I was not only able to survive summer classes, but I was able to thrive thanks to Course Hero.

    Student Picture

    Dana University of Pennsylvania ‘17, Course Hero Intern

  • Left Quote Icon

    The ability to access any university’s resources through Course Hero proved invaluable in my case. I was behind on Tulane coursework and actually used UCLA’s materials to help me move forward and get everything together on time.

    Student Picture

    Jill Tulane University ‘16, Course Hero Intern

Stuck? We have tutors online 24/7 who can help you get unstuck.
A+ icon
Ask Expert Tutors You can ask You can ask You can ask (will expire )
Answers in as fast as 15 minutes