NAME:
College Accounting
Chapter 10
Structured Notes
Plant Assets and Related Expenses:
The related expense for
Buildings, Machinery, Equipment, Furniture, Fixtures: ______
Natural Resources: ______
Intangible Assets: ______
Measuring the Cost of a Plant Asset
The rule for measuring cost is: ______
______
The cost of land includes the following costs paid by the purchaser:
______
______
______
______
______
The cost of land is ______depreciated.
The cost of land does not includes the following costs: ______
______
______and ______are two entirely separate assets. The cost of land improvement is depreciated over ______.
The cost of a building includes:
______
______
______
______
If the company constructs its own assets, the cost of the building may include______
______
If your company purchases an existing building, its costs includes all ______
______
The cost of machinery and equipment includes its:
______
______
______
______
______
______
______
The cost of furniture and fixtures includes the basic cost of each asset less ______
______, plus ______
______
Explanation of relative-sales-value method: ______
______
______
______
Accountants divide expenditures on plant assets into two categories:
______and ______
Capital expenditures are debited to an asset account because they:
______
______
An extraordinary repair is a capital expenditure because ______
______
Expenses, such as repair or maintenance expense, are not debited to an asset account because they
______
Examples of ordinary repairs: ______
Ordinary repairs are debited to: ______
Treating a capital expenditure as an expense creates an accounting error. If a company makes a capital expenditure and expenses the cost, this is an error because the cost should have been debited to an asset. This error:
______expenses
______net income.
On the balance sheet, the Equipment account is ______.
Capitalizing an expense creates the opposite error. Expenses are ______,
And net income is ______. The balance sheet ______the assets.
DEPRECIATION
Depreciation is the ______
Depreciation matches ______
Depreciation is not a process of valuation. Businesses do not ______
______
Depreciation does not mean that the business ______
______
All assets except ______wear out.
Assets such as computers and software may become ______before they wear out. An asset is obsolete when .
Depreciation of a plant asset is based on three factors:
1. ______
2. ______
3. ______
Estimated useful life is ______
Useful life may be expressed in ______, ______, or ______.
Estimated residual value—also called ______is the asset’s expected cash value at the end of its useful life.
Cost minus ______is called ______.
Depreciation Methods:
Three major depreciation methods:
______
______
______
They all work differently, but they all result in ______.
The straight-line method allocates an equal amount of depreciation to each year. ______
Cost is divided by ______
Straight line depreciation =
The entry to record each year’s depreciation is: (list account only—not amount)
Debit: ______
Credit: ______
Book Value is ______
As an asset is used, ______increases and book value ______.
Units of Production Method:
The units of production method allocates a fixed amount of depreciation to each ______
Units of production
Depreciation =
Per unit of output
Double-Declining Balance Method
Double-declining balance depreciation is ______. This type of method writes off
______
This method multiplies decreasing book value by a constant percentage that is ______
______
DDB amounts can be computed in two steps:
1. ______
______
2. ______
______
Final year depreciation is the amount needed to ______
______
The DDB method differs from the other methods in two ways:
______
______
______
______
Which depreciation method is best? That depends on ______.
A business should match an asset’s ______.
The ______is most popular with ______% of companies using this method.
OTHER ISSUES IN ACCOUNTING FOR PLANT ASSETS
Depreciation affects income taxes so generally businesses select the method that______
______
A special depreciation method called the ______
Is used for income tax purposes.
Under MACRS, assets are divided into ______
MACRS depreciation is computed by the ______method, the ______% declining balance method, or the ______method.
Depreciation for Partial Years
Many companies compute partial-year depreciation by first calculating a full year’s depreciation. They then multiply full year depreciation by the .
Another partial year depreciation policy:
______
______
Changing the Useful Life of a Depreciable Asset
For a change in accounting estimate, the asset’s remaining depreciable book value is spread over the
______
A fully-depreciated asset is one that has______.
If the asset is no longer useful, it is ______. But the asset may still be useful, and the company may continue using it. The asset account and its accumulated depreciation remain on the books, but no
Disposing of a Plant Asset
Eventually, an asset wears out or becomes obsolete. The owner may ______
______
If not, then its junked.
In all cases, you should bring ______up to date and then remove the asset from the books.
To record disposal,
______
______
If assets are junked before fully depreciated, there’s a loss equal to the ______.
The loss is reported along with expenses on the ______.
Selling a Plant Asset:
First, update ______.
When recording the sale of a plant asset, you must:
______
______
______
______
Compute gain or loss on the sale of a plant asset:
Gain (credit) = ______
Loss (debit) = ______
Businesses often trade in old plant assets for new ones. To record the exchange, a company must
______
______
For most trade-ins, the business records the cost of the new asset at the book value of the old asset plus
______
A trade-in can result in a loss. That occurs when the ______
______
We never ______.
Gains on asset exchanges occur ______
ACCOUNTING FOR NATURAL RESOURCES
(to be continued)