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Questions and Answers
What does the asset cost include?
What does the asset cost include?
Which of the following best describes physical depreciation?
Which of the following best describes physical depreciation?
How is the service life of an asset typically measured?
How is the service life of an asset typically measured?
What does the residual value represent?
What does the residual value represent?
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Which of the following is NOT a characteristic of a systematic cost allocation method?
Which of the following is NOT a characteristic of a systematic cost allocation method?
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Which depreciation method allocates cost based on the usage of the asset?
Which depreciation method allocates cost based on the usage of the asset?
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What is a primary factor that limits an asset's service life?
What is a primary factor that limits an asset's service life?
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In calculating depreciation, which term is used for the cost that is subject to allocation?
In calculating depreciation, which term is used for the cost that is subject to allocation?
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What is the duration of copyright protection for an artistic creation?
What is the duration of copyright protection for an artistic creation?
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Which of the following best describes a franchise?
Which of the following best describes a franchise?
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What is the primary purpose of the amortization expense recorded annually for the customer list?
What is the primary purpose of the amortization expense recorded annually for the customer list?
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Which of the following is considered a technology-related intangible asset?
Which of the following is considered a technology-related intangible asset?
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What type of asset represents the value from contractual arrangements?
What type of asset represents the value from contractual arrangements?
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How long does a patent protect an invention?
How long does a patent protect an invention?
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Which intangible asset type is specifically related to ownership rights in artistic works?
Which intangible asset type is specifically related to ownership rights in artistic works?
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In a business combination, what material amounts may be recorded as intangible assets?
In a business combination, what material amounts may be recorded as intangible assets?
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What is the most widely used method of depletion for financial accounting?
What is the most widely used method of depletion for financial accounting?
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When calculating depletion per unit, what value is subtracted from the mining property's carrying amount?
When calculating depletion per unit, what value is subtracted from the mining property's carrying amount?
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How is depletion calculated when a company removes resources from the ground?
How is depletion calculated when a company removes resources from the ground?
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Which of the following best describes intangible assets?
Which of the following best describes intangible assets?
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If Low Company had an initial mineral property cost of Br. 720,000 and estimated there were 1.2 million recoverable units, what is the depletion per unit?
If Low Company had an initial mineral property cost of Br. 720,000 and estimated there were 1.2 million recoverable units, what is the depletion per unit?
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What happens to the depletion rate when additional costs are incurred for mining properties?
What happens to the depletion rate when additional costs are incurred for mining properties?
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Why does The Coca-Cola Company's success primarily come from its secret formula rather than its facilities?
Why does The Coca-Cola Company's success primarily come from its secret formula rather than its facilities?
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Which of the following is NOT a characteristic of intangible assets?
Which of the following is NOT a characteristic of intangible assets?
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Which of the following costs should be excluded when accounting for an asset?
Which of the following costs should be excluded when accounting for an asset?
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What is the correct definition of depreciation?
What is the correct definition of depreciation?
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Why is land not depreciated in accounting practices?
Why is land not depreciated in accounting practices?
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Which term is used to refer to the allocation of costs for intangible assets?
Which term is used to refer to the allocation of costs for intangible assets?
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What principle requires matching asset expenses against generated revenue?
What principle requires matching asset expenses against generated revenue?
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Which of these statements is true regarding depreciation, depletion, and amortization?
Which of these statements is true regarding depreciation, depletion, and amortization?
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Which type of asset does depletion specifically pertain to?
Which type of asset does depletion specifically pertain to?
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What is NOT considered a cost element to include when assessing the value of machinery and equipment?
What is NOT considered a cost element to include when assessing the value of machinery and equipment?
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What is the present value used by Antush Company to record the acquisition of equipment purchased through a note?
What is the present value used by Antush Company to record the acquisition of equipment purchased through a note?
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How does Klemme Company record the donation of land worth $20,000 from the city of Julesberg?
How does Klemme Company record the donation of land worth $20,000 from the city of Julesberg?
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Which of the following is NOT considered a financial instrument?
Which of the following is NOT considered a financial instrument?
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Which category do trademarks fall under?
Which category do trademarks fall under?
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What is the accounting treatment for a donation from a nongovernmental unit, such as a CEO donating a building worth $50,000?
What is the accounting treatment for a donation from a nongovernmental unit, such as a CEO donating a building worth $50,000?
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When Antush Company issues a non-interest-bearing note, how is the discount on notes payable calculated?
When Antush Company issues a non-interest-bearing note, how is the discount on notes payable calculated?
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What is the maximum period for which a trademark can be renewed under U.S. law?
What is the maximum period for which a trademark can be renewed under U.S. law?
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How should a limited-life customer-related intangible asset be accounted for?
How should a limited-life customer-related intangible asset be accounted for?
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Which statement best describes a nonreciprocal transfer?
Which statement best describes a nonreciprocal transfer?
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Which of the following is an example of customer-related intangible assets?
Which of the following is an example of customer-related intangible assets?
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How must a company recognize the fair value of the asset when acquiring it through the issuance of securities?
How must a company recognize the fair value of the asset when acquiring it through the issuance of securities?
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What is the accounting impact on the company's income statement when it receives a donation from a nongovernmental agency?
What is the accounting impact on the company's income statement when it receives a donation from a nongovernmental agency?
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What distinguishes marketing-related intangible assets from other intangible assets?
What distinguishes marketing-related intangible assets from other intangible assets?
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For Antush Company, what would be the journal entry to recognize the discount on the notes payable?
For Antush Company, what would be the journal entry to recognize the discount on the notes payable?
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If Green Market Inc. purchases a customer list for $6,000,000 and expects to benefit for three years, how much would they amortize each year?
If Green Market Inc. purchases a customer list for $6,000,000 and expects to benefit for three years, how much would they amortize each year?
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What common feature do all categories of intangible assets share?
What common feature do all categories of intangible assets share?
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Study Notes
Plant, Property, and Equipment
- Plant, property, and equipment (PP&E) are significant components of a company's assets
- PP&E includes assets like land, buildings, factories, machinery, equipment, warehouses, retail stores, and delivery vehicles
- PP&E are typically a substantial portion of a company's total assets
- This chapter discusses acquisition costs, post-acquisition costs, and disposal of PP&E, along with depreciation
Classification of Operational Long-Term Assets
- Operational long-term assets are categorized into tangible and intangible assets
-
Intangible assets: Do not have physical existence
- Examples include goodwill, copyrights, patents, trademarks, franchises
- Costs of acquired intangible assets are amortized over their estimated economic lives
-
Tangible assets: Have physical existence
- Sub-classified into plant assets and natural resources
-
Plant assets (PPE): Used in operations, not incorporated into finished goods
- Examples include land, buildings, machinery, equipment, furniture
- Most plant assets have limited economic lives, so their costs are depreciated over time
-
Natural resources: Resources that are exhausted during extraction
- Examples include oil, gas, timber, and mineral deposits
- Costs of acquiring and developing these resources are allocated to expenses through a process of depletion
-
Intangible assets: Do not have physical existence
Characteristics of Property, Plant, and Equipment
- Tangible non-current assets used in normal business operations
- Three characteristics:
- Held for use, not investment
- Expected life of more than one year
- Tangible in nature (physical substance)
Determination of Cost
- Cost of PP&E is the cash outlay (or equivalent) needed to acquire and prepare the asset for operation
- Includes contract price, less discounts, freight, assembly, installation, and testing costs
- Similar to inventory, discounts are subtracted from the cost.
Recording the Acquisition
- Example scenario: Devon Company purchased a machine for 100,000witha2/10,n/30paymentterm.Theydidn′ttakethecashdiscount,incurredtransportationcosts(100,000 with a 2/10, n/30 payment term. They didn't take the cash discount, incurred transportation costs (100,000witha2/10,n/30paymentterm.Theydidn′ttakethecashdiscount,incurredtransportationcosts(2,500), and installation/testing costs (3,000).Salestaxwas73,000). Sales tax was 7% of the invoice price (3,000).Salestaxwas77,000), and uninsured damage during installation was also $500.
- The journal entry would record these costs and related expenses in the ledger.
Land Improvements
- Costs of improvements with a limited economic life (e.g., landscaping, streets, sidewalks) are recorded separately and depreciated over their economic life
- If the local government is responsible for upkeep, the improvements are treated as indefinite and recorded with land
Buildings
- Includes acquisition/construction price, remodeling/reconditioning costs, excavation costs, architectural and permit costs
- Unanticipated costs (e.g., strikes, fires) are expensed, not capitalized
Machinery and Equipment
- Machinery, tools, computers, office equipment, furniture, and fixtures are included in this category.
- Costs to include certain factors such as the general and administrative overhead, etc should be excluded
Accounting for Depreciation
- Depreciation systematically allocates the total cost of tangible assets over their useful lives
- Depreciation is usually an expense, it is paired with a revenue for record-keeping purposes
- Useful lives, Residual values, method of cost allocation
Time-Based Methods
- Straight-line method: Equal cost is allocated to each period (useful life)
- Declining-balance method: The depreciation amount declines each period by applying a constant rate to the book value of the asset
- Units-of-output method: Depreciation is calculated based on the asset's use/productivity, not time
Disposal of Plant Assets
- Three methods: retiring, selling, exchanging
- Considerations when disposing of plant assets include updating accumulated depreciation, recording gains or losses, etc
- Consideration should be taken to whether the asset is being sold and whether there is any gain or loss as a result, or whether the asset is retired and there's no gain or loss
Depletion of Natural resources
- Depletion is similar to depreciation for recognizing the expense of using natural resources
- Depletion process allocates costs of extracting natural resources (oil, gas, minerals, timber, etc) over the estimated recoverable units of the resource
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Description
This quiz covers key concepts related to plant, property, and equipment (PP&E), including their significance as company assets. It addresses the classification of operational long-term assets, examining tangible and intangible assets, as well as the processes of acquisition, depreciation, and disposal of PP&E.
