ACC 305 Ch 9 Notes PDF

Chapter 9 notes Created @October 24, 2024 1:26 PM Class ACC 305 PPE Accounts (Asset): Land Buildings Land Improvements Machinery Vehicles Equipment Furniture and fixt...

Chapter 9 notes Created @October 24, 2024 1:26 PM Class ACC 305 PPE Accounts (Asset): Land Buildings Land Improvements Machinery Vehicles Equipment Furniture and fixtures Computers Accumulated Depreciation (contra asset accounts) Characteristics — Mostly PHYSICAL — Used in operations — Has to be expensive. Will have threshold depending on business — Has to have useful life GREATER THAN 1 year For most of the above items: (all costs necessary to get the item operational): Purchase price Sales tax Shipping Installation Testing fees License fees Insurance (for transit, after operation begins it is a separate expense) Chapter 9 notes 1  Land and buildings: Prior to operation: Land improvement Permanent landscaping (i.e. planting trees NOT cutting grass) Fencing Paving Lighting Asset is not depreciated until AFTER all costs necessary to make thing operational, THEN start depreciating 2 types of transactions (will be given in problem): commercial substance no commercial substance Loss - commercial substance doesn’t matter Gain WITH commercial substance, recognize gain as is Gain - NO commercial substance, and NO cash received, no gain recorded, reduce the cost of the new asset by the amount of the gain Gain - no commercial substance, some cash received recognize part of the gain - getting cash is called boot If multiple items sold for one price sold for 80,000 Book value fair value inventory 30,000 25,000 25% *80k 20k land 20,000 25,000 25% *80k 20k building 35,000 50,000 50% *80k 40k 85,000 100,000 80k Chapter 9 notes 2  use fair value take percentage of total Journal Entries 1. Take depreciation to date of sale 2. Figure out if there is any cash involved 3. Debit accumulated depreciation 4. Credit the cost of the old asset 5. Debit new asset 6. Debit or credit cash 7. Record gain or loss what if NO commercial substance - do NOT record gain, so we must reduce the cost of the asset we got. Losses are ALWAYS recorded gain is coming through as less cost book value-fair value will give you the gain or the loss Commercial substance loss: Trade coffee SOLUTION: machine Cost of old debit machine (book accumulated 4000 value) 12,000 depreciation accum. depr. credit equip 12000 4,000 FV of what we fair value debit gave up + cash 13,000 6,000 equipment given so 6k plus 7k is 13k Chapter 9 notes 3  16k-9k so we List price of pay 7k in cash new machine credit cash 7000 (sale price - (sale price) trade in 16,000 allowance) doesn't matter Trade in debit loss to if commercial allowance 2000 balance substance or 9,000 not HAS balances 17 commercial and 19 in substance Commercial substance gain Trucks cost 64,000 accum dep 22000 FV 49,000 pay 11000 commercial substance: YES debit accumulated 22000 depreciation credit trucks 64000 would be 53 under no comm. substance by subtracting debit trucks 49plus11 is 60k gain credit cash for 11000 credit gain of 7,000 Gain book value is 110-50 or cost minus Trucks depreciation cost 110,000 accum dep 50k fv 100 get cash of 10k Chapter 9 notes 4  new fv 40k No commercial substance debit accum dep50k credit truck 110k subtract the whole gain and then debit trucks 90k add back the reduced gain so 54k cash 10k for comm gain of 40k gain with no comm substance, 4k substance how much cash we got (10k) / (cash) (10k) +new asset (90k) * gain (40k) - new gain number (4k) Chapter 9 notes 5