6-Property, Plant & Equipment

Question 1

Acquisition Costs

Answer 1

• Purchase price
• Legal fees
• Delinquent taxes
• Title insurance
• Transportation (freight in)
• Installation
• Test runs

Question 2

Acquisition Costs for Land

Answer 2

• Costs of razing or demolishing an old building is added to the land cost
• Proceeds from the sale of any scrap (old bricks) is a reduction of the land cost

Question 3

Depreciation Methods-Straight Line

Answer 3

• Used when assets give equal benefits to the company throughout their useful lives
• Depreciation expense is the same amount each year
• Depreciation Rate= 1/useful life (1/5=20%)
• Depreciation expenses= (cost-salvage value)/useful life

Question 4

To record depreciation

Answer 4

(dr) Depreciation Expense (I/S) xxx

(cr) Accumulated Depreciation xxx

Question 5

Sum of the Years Digits (SYD)

Answer 5

• N(N+1)/2

- Depreciation expenses= (cost-salvage value) x (# of years left in asset’s life/Sum of years in asset’s life)

Question 6

Double Declining Balance (DDB)

Answer 6

• Depreciation expense should not be reduced below salvage value.
• Depreciation expense- (cost (1/# of years x 2))
• Depreciation rate that is twice the straight-line rate is applied against the book value of the asset. Example; 1/5=20%(S/L Rate) x 2= 40% (DDB rate)

Question 7

Units of Production

Answer 7

-Depreciation expense= (Cost-Salvage Value) X(hours this year/total estimated hours)

Question 8

Capital Expenditure

Answer 8

Costs that improve an asset by making it bigger, better or longer-lasting, recognized as an asset, generally an addition to the asset improved.

Question 9

Depletion

Answer 9

Recognition of the cost of natural resources as they are extracted using a method similar to the units of production or activity method of accounting

Question 10

Impairment

Answer 10

The sum of the expected future net cash flows (from the long-lived assets) LESS the carrying amount of the assets

Question 11

Impairment Loss

Answer 11

When the carrying amount of the asset is GREATER Than the Fair Value of the asset.

Question 12

Nonmonetary Exchanges

Answer 12

An exchange with another entity that primarily involves nonmonetary assets and liabilities

Question 13

Exchanges with Commercial Substance (Unlike)

Answer 13

-Recognize all gains and losses
-Record new asset at FMV
1-FMV given up + cash paid (-cash received)
2-FMV of asset received
3-Book Value (BV) given up + cash paid (-cash received)

Question 14

Exchanges Lacking Commercial Substance (Like)

Answer 14

Something typically added to a transaction to equalize the value of items exchanged, such as cash paid in addition a vehicle being exchanged for another vehicle