《会计学原理》原版教辅chap010im

CHAPTER10

PLANTASSETS,NATURALRESOURCESANDINTANGIBLES

RelatedAssignmentMaterials

StudentLearningObjectives

Conceptualobjectives:

C1.Describeplantassetsandissuesinaccountingforthem.

C2.Explaindepreciationandthefactorsaffectingitscomputation.

C3.Explaindepreciationforpartialyearsandchangesinestimates.

Analyticalobjectives:

A1.Compareandanalyze

depreciationfordifferentmethods.

A2.Computetotalassetturnoverandapplyittoanalyzeacompany'suseofassets.

Proceduralobjectives:

P1.Applythecostprincipletocomputethecostofplantassets.

P2.Computeandrecorddepreciationusingstraight-line,units-of-production,anddeclining-balancemethods.

P3.Distinguishbetweenrevenueandcapitalexpenditures,andaccountforthem.

P4.Accountforassetdisposalthroughdiscarding,orselling,anasset.

P5.Accountfornaturalresourceassetsandtheirdepletion.

P6.Accountforintangibleassets.

P7AAccountforassetexchanges

Questions

1,3,4,17,

18,19

5

6

16

2,4

7,8

9

10,11

12,13,14,

15

Quick

Studies*

10-2,10-3

10-4

10-11

10-1

10-3,10-5

10-6

10-7

10-8,10-9

10-9,10-10,

10-12

Exercises*

10-2

10-3,10-6,

10-7

10-8

10-18

10-1,10-2

10-4,10-5,

10-12

10-9,10-10

10-11,10-12

10-13,10-14

10-14,

10-15,

10-16,

10-18,10-19

Problems*

10-1,10-2

10-1,10-2

10-3,10-4,

10-1,10-5,

10-6

10-1,10-2,

10-3,10-5

10-1,10-2,

10-4,10-5,

10-6

10-3

10-4,10-5

10-6

10-7

10-6,10-7

BeyondtheNumbers

EC,TTN,

BW,HTR

EC,TIA

RIA,TIA

RIA,CA,

CIP,ED,

GD

TIA

HTR

TTN,BW

*Seeadditionalinformationonnextpagethatpertainstothesequickstudies,exercisesandproblems.

©TheMcGraw-HillCompanies,Inc.,2007

Instructor’sResourceManual,Chapter10173

AdditionalInformationonRelatedAssignmentMaterial

CorrespondingproblemsinsetB(intext)andsetC(onbook’swebsite),alsorelatetolearningobjectivesidentifiedingridonpreviouspage.TheSerialProblemforSuccessSystemscontinuesinthischapter.Problems10-1A10-2Aand10-7AcanbecompletedusingExcel.Problem10-1A,10-5A,and10-6AcanbecompletedwithPeachtreeorCarolYatchGeneralLedgerSoftware.

HomeworkManager(Availableontheinstructor’scourse-specificwebsite)repeatsallnumericalQuickStudies,allExercisesandProblemsSetA.HomeworkManagerprovidesnewnumberseachtimetheQuickStudy,ExerciseorProblemisworked.Itallowsinstructorstomonitor,promote,andassessstudentlearning.Itcanbeusedinpractice,homework,orexammode.

SynopsisofChapterRevisions

FairytaleBrowniesNEWopenerwithnewentrepreneurialassignment

Revisedexhibitonaccountingforplantassetdisposals

NewdataonassetlivesforHersheyandTootsieRoll

Updateddataondepreciationmethodsused

Movedexchangeofplantassetstotheappendix

Updatedtextandassignmentsfornewstandardonassetexchanges

Newassignmentsonassetdisposals

Newassignmentsonaccountingforgoodwill

NewassignmentexaminingYahoo!’saccountingforintangibles

Newassignmentonaccountingforbrandvalues

ActiveLearningActivities

FoundinSTUDENTLEARNINGTOOLS

Description

Usesteamcollaborationandthink-square-sharetoreviewbasicplantassetconceptsandtointroducethevariousmethodsofdepreciation.Relevantterminologyisemphasized.

Usesresidentexpertinstructiontoreinforceunderstandingofthemethodsofdepreciation.Comparisonsofeachmethod’seffectonprofitabilityandbookvalueareemphasized.Useswritingtolearntoassesstheeffectivenessofresidentexpertinstructioninclassactivity#27.Mayalsobeusedtoassesslearningfromlecture.Usesteamcollaborationandthink-square-sharetointroduceaccountingforplantassetdisposals.Providesachartdisplayingtherulesforplantassettrade-inandrequiresteamsdiscussandapplytheserulestodeterminehowtoaccountfortrade-insdescribedinactivity.

Activity

ClassActivity#26

ClassActivity#27

ClassActivity#28

ClassActivity#29

Topic(s)

Plantassetsanddepreciationmethods

Depreciationmethods

Depreciationmethods

Plantasset

disposals

SLT

pp.#

125-127

129

130-131

132-135

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174FundamentalAccountingPrinciples,18/e

Useswritingtolearnandteamcollaborationtodrawuponexistingknowledgeandlifeexperiencetodevelopaconceptualunderstandingoftheactivitytopics.Comparesandcontrastsdepreciation,depletion,andamortization.

Naturalresourcesandintangibleassets

ClassActivity#30

137-138

Thisgridiscontinuedonnextpage.

Writing

257-258

Intangibleassets

RequiresstudentsreadtheForbesarticleprovided.

Assignment#12

Thearticlediscussestheimpactandimplicationsofwrite-offperiodschosenbytwocompanies—CineplexOdeonandBlockbusterEntertainment.Theassignmentrequiresstudentstoprepareawrittenreportinwhichtheymakejudgmentsandexpressopinions.

Writing

259-260

Accountingfor

RequiresstudentstoreadTheWallStreetJournal

Assignment#13

goodwill—domesticvs.internationalrules

articleprovided.ThearticlehighlightsthedifferencesinrulesforaccountingforgoodwillintheUnitedStatesandothercountries.Theassignmentrequiresstudentstoprepareawrittenreportthatexhibitsunderstandingofthearticleingeneralandtheimpactofaninternationalrule.

©TheMcGraw-HillCompanies,Inc.,2007

Instructor’sResourceManual,Chapter10175

Notes

ChapterOutline

I.PlantAssets—Tangibleassetsusedinacompany'soperationsthathaveausefullifeofmorethanoneaccountingperiod.Consistentwithcostprinciple,recordedatcost.Costincludesallnormalandreasonableexpendituresnecessarytogettheassetinplaceandreadyforitsintendeduse.

A.Land

Costincludespurchaseprice,realestatecommissions,title

insurance,legalfees,accruedpropertytaxes,legalfees,title

insurancefees,accruedpropertytaxes,surveying,clearing,

landscaping,andlocalgovernmentassessments(currentorfuture)

forstreets,sewers,etc.Alsoincludescostofremovalofany

existingstructures(lessproceedsfromsaleofsalvagedmaterial).

Landisnotdepreciated.

B.LandImprovements

Coststhatincreasetheusefulnessoftheland.

1.Examples:parkinglotsurfaces,driveways,fences,andlightingsystems(allhavelimitedusefullives).

2.CostsarechargedtoaseparateLandImprovementaccount.

3.Costsareallocatedtotheperiodstheybenefit(depreciated).

C.Buildings

1.Ifpurchased,costusuallyincludesitspurchaseprice,brokeragefees,taxes,titlefees,attorneycosts,andallexpenditurestomakeitreadyforitsintendeduse(anynecessaryrepairsorrenovationssuchaswiring,lighting,flooringandwallcoverings).

2.Ifconstructedforownuse,costincludesmaterialsandlaborplusareasonableamountofindirectoverheadcost(heat,lighting,power,anddepreciationonmachineryusedtoconstructtheasset).Costalsoincludesdesignfees,buildingpermits,andinsuranceduringconstruction.

D.MachineryandEquipment

Costsincludeallnormalandnecessaryexpenditurestopurchase

themandpreparethemfortheirintendeduse(purchaseprice,

taxes,transportationcharges,insurancewhileintransit,andthe

installing,assemblingandtestingofmachineryandequipment).

E.Lump-SumPurchase

Agroupofplantassetspurchasedwithasingletransactionfora

lump-sumprice.Individualassetcostisdeterminedbyallocating

thecostofthepurchaseamongthedifferenttypesofassets

acquiredbasedontheirrelativemarketvalues.

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176FundamentalAccountingPrinciples,18/e

Notes

ChapterOutline

II.Depreciation—Theprocessofallocatingthecostofaplantassettoexpenseintheaccountingperiodsbenefitingfromitsuse.RecordedasadebittoDepreciationExpenseandacredittoAccumulatedDepreciation.

A.FactorsinComputingDepreciation

1.Cost—describedinsectionIabove.

2.Salvagevalue—(residualvalueorscrapvalue)anestimateoftheasset'svalueattheendofitsbenefitperiod.

3.Usefullife—(servicelife)lengthoftimetheassetisexpectedtobeproductivelyusedinacompany'soperations.Factorsaffectingusefullifeinclude:

a.Inadequacy—theinsufficientcapacityofplantassetstomeetthecompany'sgrowingproductivedemands.

b.Obsolescence—referstoaplantassetthatisnolongerusefulinproducinggoodsorserviceswithacompetitiveadvantagebecauseofnewinventionsandimprovements.

B.DepreciationMethods

1.Straight-linemethod—chargesthesameamounttoexpenseforeachperiodoftheasset’susefullife.Methodusedbymostcompanies.

Computation:Costminussalvagevalue(equalsthe

depreciablecost)dividedbythenumberofaccountingperiods

intheasset'susefullifeequalstheperiodicdepreciation.

2.Units-of-productionmethod—chargesavaryingamountofcosttoexpenseforeachperiodofanasset’susefullifedependingonitsusage.Examplesofcapacitymeasurements:milesdriven,productoutputs,hoursused.Computation:

a.Costminussalvagevaluedividedbythetotalnumberofunitsexpectedtobeproducedduringassetsusefullifeequalsthedepreciationperunit.

b.Depreciationperunitismultipliedbynumberofunitsconsumedintheperiodequalstheperiod’sdepreciation.

3.Declining-balancemethod—anaccelerateddepreciationmethodwhichyieldslargerdepreciationexpensesduringtheearlyyearsofanasset'slifeandsmallerchargesinlateryears.Computation:Multiplytheasset'sbeginningofperiodbookvaluebyadepreciationrate(usuallytwicethestraight-linerate)todeterminetheperiod’sdepreciation.Ifdoublethestraight-linerateisusedthemethodisreferredtoasdoubledeclining-balance.(Notethatsalvagevalueisnotusedinthecalculation.)

©TheMcGraw-HillCompanies,Inc.,2007

Instructor’sResourceManual,Chapter10177

Notes

ChapterOutline

4.Depreciationfortaxreporting—differencesbetweenfinancialandtaxaccountingsystemsarenormalandexpected.

a.Manycompaniesuseaccelerateddepreciationincomputingtaxableincomebecauseitpostponesitstaxpaymentsbycharginghigherdepreciationexpenseintheearlyyearsandloweramountsinthelateryears.

b.FederalincometaxlawrulesfordepreciatingassetsarecalledtheModifiedAcceleratedCostRecoverySystem(MACRS).

c.MACRSisnotacceptableforfinancialreportingbecauseitallocatescostsoveranarbitraryperiodthatislessthan

theasset'susefullife.

C.PartialYearDepreciation

Whenanassetispurchased(ordisposedof)atatimeotherthan

thebeginningorendofanaccountingperiod,depreciationis

recordedforpartoftheyear.

D.RevisingDepreciation

Ifestimatedsalvageand/orusefullifeisrevised:

1.Depreciationexpensecomputationsarerevisedbyspreadingtheremainingcosttobedepreciatedovertherevisedusefulliferemaining.

2.Therevisionisreferredtoasachangeinanaccountingestimateandisreflectedincurrentandfuturefinancialstatements,notpriorstatements.

E.ReportingDepreciation

1.Costofplantassetsandaccumulateddepreciationarereportedonthebalancesheetorinitsnotes.

2.Tosatisfythefull-disclosureprinciple,thedepreciationmethodormethodsusedmustbedisclosedinabalancesheetnote.

3.Plantassetsarereportedattheirundepreciatedcosts(bookvalue,notatmarketvalue.

4.Accumulateddepreciationonthebalancesheetdoesnotrepresentfundsaccumulatedtobuynewassetswhenthepresentlyownedassetsmustbereplaced.

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178FundamentalAccountingPrinciples,18/e

Notes

ChapterOutline

III.AdditionalExpenditures—Thosemadetooperate,maintain,repair,orimproveplantassetsaftertheirinitialpurchase.Torecordtheseexpendituresonemustdecidewhethertocapitalize(increaseandasset)orexpenseincurrentperiod.

A.OrdinaryRepairs—expenditurestokeepanassetinnormal,goodoperatingcondition.Theydonotmateriallyincreasetheasset'slifeorproductivecapabilities.

1.Treatedasrevenueexpenditures(alsocalledincomestatementexpenditures).Recordedasexpensesoncurrentperiod'sincomestatement.

2.Examples:cleaning,repainting,andlubricating.

B.Betterments(Improvements)andExtraordinaryRepairs—expenditurestomakeaplantassetmoreefficientorproductive.

1.Bettermentsofteninvolvesaddingacomponenttoanassetthatdoesnotalwaysextenditsusefullife.

a.Examples:addingawingtoabuildingorchangingamachinefrommanualfunctiontoautomatic.

b.Debitedtotheassetaccount.

c.Theincreaseinasset’sbookvalueresultsinneedtorevisefuturedepreciation.

2.Extraordinaryrepairsareexpendituresthatdoextendtheasset'susefullifebeyonditsoriginalestimate.

a.Examples:roofingreplacementandmajoroverhaulsofmachineryandequipment.

b.Treatedascapitalexpenditures(debitedtoassetaccount)becausetheybenefitfutureperiods.

©TheMcGraw-HillCompanies,Inc.,2007

Instructor’sResourceManual,Chapter10179

Notes

ChapterOutline

IV.DisposalsofPlantAssets—Assetsmaybediscarded,sold,orexchangedduetowearandtear,obsolescence,inadequacy,ordamage

byfireorotheraccident.Generalaccountingstepsinadisposalofaplantasset:

•Recorddepreciationuptothedateofdisposal—thisalsoupdatesAccumulatedDepreciation.

•Removeaccountbalancesofthedisposedasset—includingitsAccumulatedDepreciation.

•Recordanycash(and/orotherassets)receivedorpaidinthedisposal.

•Recordanygainorlossresultingfromcomparingtheasset'sbookvaluewiththemarketvalueofanyassetsreceived.Exception:inthecaseofanexchangethatlackscommercialsubstance—discussedinAppendix10A.

A.DiscardingPlantAssets—nolongerusefulandhasnomarketvalue

Followgeneralaccountingstepsabove.

1.Iffullydepreciated,noloss.

2.Ifnotfullydepreciated,recordlossequaltothebookvalue.

B.SellingPlantAssets

Followgeneralaccountingstepsabove.

1.Saleisatagainifvaluereceivedexceedsbookvalue.

2.Saleisatalossifvaluereceivedislessthanbookvalue.

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180FundamentalAccountingPrinciples,18/e

Notes

ChapterOutline

V.NaturalResources—Assetsthatarephysicallyconsumedwhenused.Examplesincludetimber,mineraldeposits,andoilandgasfields.Oftencalledwastingassets.

A.CostDeterminationandDepletion

1.Recordedatcost,whichincludesallexpendituresnecessarytoacquiretheresourceandprepareitforitsintendeduse.

2.Depletionistheprocessofallocatingthecostofnaturalresourcestotheperiodswhenitisconsumed,knownastheresource'susefullife.

3.Depletionexpense(debit)perperiodisbasedontheunitsextracted.Thecalculationissimilartounits-of-productiondepreciation.Accumulateddepletioniscreditedintherecording.

4.Naturalresourcesarereportedonthebalancesheetatcostlessaccumulateddepletion.

B.PlantAssetsUsedinExtractingResources

Whentheusefulnessoftheseplantassetsisdirectlyrelatedtothe

depletionoftheresource,theplantassetisdepreciatedin

proportiontothedepletionoftheresource(useunits-of-production

methodandthelifeoftheresource).

VI.IntangibleAssets—Certainnonphysicalassets(usedinoperations)thatconferonownerslong-termrights,privileges,competitiveadvantages.ExamplesinBbelow.

A.CostDeterminationandAmortization

1.Recordedatcostwhenpurchased.Ifsimplydevelopedbythebusiness,relativeimmaterialcostsareexpensed.

2.Amortization—processofsystematicallyallocatingcostofintangibleassettoexpenseoveritsestimatedusefuloreconomiclife.(Ifithasanindefiniteusefullife,itshouldnot

beamortizedbutistestedannuallyforimpairment—thistestis

discussedinadvancedcourse)

a.Usefuloreconomiclifemaydifferfromlegallife.

b.Computedonastraight-linebasis(costdividedbyusefuloreconomiclife)

c.Amortizationperiodcannotexceed40years.

d.DebitAmortizationExpenseandcreditAccumulatedAmortization.

e.Leaseholdimprovementsareamortizedoverthelifeoftheleaseorthelifeoftheimprovementswhicheverisshorter.DebitRentExpensetoamortize.

©TheMcGraw-HillCompanies,Inc.,2007

Instructor’sResourceManual,Chapter10181

Notes

ChapterOutline

B.TypesofIntangibles

1.Patent—anexclusiverightgrantedtoitsownerto

manufactureandsellapatenteditemortouseaprocessfor20

years.

2.Copyright—theexclusiverighttopublishandsellamusical,literary,orartisticworkduringthelifeofthecreatorplus70years.

3.Leasehold—therightstopossessanduseleasedpropertygrantedbytheproperty’sowner(lessor)tothelesseeinacontractcalledalease.Recorded,iftherewasacostinvolved,asanintangibleassetbythelessee(orsublessee).AsLeaseholdsareamortized,thecostischargedtoRentExpense.

4.Leaseholdimprovements—alterationsorimprovementstoleasedproperty,suchaspartitions,painting,andstorefronts.AmortizationresultsindebittoAmortizationExpense—LeaseholdImprovements.

5.FranchisesandLicenses—rightsthatacompanyorgovernmentgrantsanentitytodeliveraproductorserviceunderspecifiedconditions.

6.TrademarksandTradeNames—symbols,names,phrases,orjinglesidentifiedwithacompany,product,orservice.

7.Goodwill—specificmeaninginaccounting:theamountbywhichthevalueofacompanyexceedsthevalueofitsindividualassetsandliabilities.Impliesthecompanyasawholehascertainvaluableattributesnotmeasuredamongitsindividualassetsandliabilities.Goodwillismeasuredasthe

excessofcostofanacquiredentityoverthevaluableofnet

assetsacquired.Itisnotamortizedbutistestedannuallyfor

impairment.

VII.

DecisionAnalysis—TotalAssetTurnover

A.Ameasureofhowefficientlyacompanyusesitsassetstogeneratesales.

B.Calculatedbydividingnetsalesbyaveragetotalassets.

VIII.

ExchangingPlantAssets—Appendix10A

A.Accountingfortheexchangedependsonwhetherthetransactionhascommercialsubstance.Commercialsubstanceexistsifthecompany’sfuturecashflowschangeasaresultofthetransaction.

B.Ifcommercialsubstanceexists,againorlossisrecordedbasedonthedifferencebetweenthebookvalueoftheassetsgivenupandthemarketvalueoftheassetsreceived.

C.Ifexchangelackscommercialsubstance,nogainorlossisrecorded,andtheassetreceivedisrecordedbasedonthebookvalueoftheassetsgivenup.

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182FundamentalAccountingPrinciples,18/e

VISUAL#19

FORMULASFORDEPRECIATIONMETHODS

1.STRAIGHTLINE

FHC*-EstimatedsalvageEstimatedusefullife

*FullHistoricalCost

=

Annual

Depreciation

2.UNITSOFPRODUCTION

a)FHC-EstimatedsalvagePredictedunitsofproduction

b)CPU*xunitsproducedinperiod=

=

(Depreciable)Costper

Unit

DepreciationforPERIOD

(Inlastyear,depreciatetoestimatedsalvagevalue;never

depreciatebelowthisamount.)

**CostPerUnit

3.DOUBLE-DECLININGBALANCE

BookValue(beginningofyear)xRATE*=Depreciation(forthatyear)

*RATETherateusedisconstantanditistwicewhatthe

straightlineratewouldhavebeenforthisasset.

(Inthelastyear,depreciatetoestimatedsalvagevalue;never

depreciatebelowthisamount.)

©TheMcGraw-HillCompanies,Inc.,2007

Instructor’sResourceManual,Chapter10183

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184FundamentalAccountingPrinciples,18/e

AlternateDemonstrationProblem

ChapterTen

Anewmachinecosts$120,000,hasanestimatedusefullifeoffiveyearsandanestimatedsalvagevalueof$15,000attheendofthattime.Itisexpectedthatthemachinecanproduce210,000widgetsduringitsusefullife.

TheNewTimesCompanypurchasesthismachineonJanuary1,2006,andusesitforexactlythreeyears.Duringtheseyearstheannualproductionofwidgetshasbeen80,000,50,000,and30,000units,respectively.OnJanuary1,20X9,themachineissoldfor$45,000.

Required:

1.Calculatethedepreciationexpenseforeachofthefirstthreeyearsusing:

a.Straight-line

b.Units-of-production

c.Double-declining-balance

2.Preparetheproperjournalentryforthesaleofthemachineunderthethreedifferentdepreciationmethods.

©TheMcGraw-HillCompanies,Inc.,2007

Instructor’sResourceManual,Chapter10185

Solution:AlternateDemonstrationProblem

ChapterTen

1a.Straight-line

Thedepreciationexpenseeachyearisequaltocostminussalvagevaluedividedbyusefullife.Inthisexamplethecostis$120,000,thesalvagevalueis$15,000,andtheusefullifeis5years.Therefore,

D=(120,000-15,000)/5

=21,000eachyear

1b.Units-of-production

Thedepreciationexpenseeachyearisequaltoarate[(costminussalvage)dividedbytotalproduction]multipliedb