ACCT 210 chapter 9: PPE (Plant Assets) and how to record accumlated depreciation and deprciation expense

ordinary repairs

expenditures to maintain the operating efficiency and expected productive life of the asset

How to record PPE. What are the 3 main journal entries used to record PPE

1. Record initial acquisition of PPE at cost. 2. Record annual depreciation expense. 3. Record disposal of PPE asset. 1st 2 steps always the same for JE. 1. Record initial acquisition of PPE at cost Ex: Increase in land = debit and decrease in cash — To record purchase of land 2. Record annual depreciation expense (have to calculate it unless give it) Increase in depreciation expense Increase in accumulated depreciation-Equimpent — To record annual depreciation 3. 3 Record disposal of PPE asset (depends if sale) go to that later

Amortization and Adjusting entries: Ex: National Labs purchases a patent at a cost of $60,000 on June 30, 2025. The company estimates the useful life to be eight years. At the end of 2025, National will record amortization expense as follows: — Look at picture for general concept. What's adjusting entry for intangible assets (Limtied Life)

(Amortized: over the shorter of the asset's useful or legal life) using various methods but most often straight- line Option 1: Increase in amortization expense $3,750 = debit Decrease in Patent $3,750 = $3,750 credit Option 2: Increase in Amortization expense = $3,750 debit Increase in accumulated amortization = $3,750 credit Calculation amortization expense = Cost 60,000/8 (useful life years) * 6/12 = 7,500 * ½ = 3,750 — Because it said end of 2025, it's Dec 1st = 12 year - June is 6th month in year = 6 — I think June 30th, is close to July, so it's 12-7 (July)+ 1 = 6 months) — No salvage value for amortization

Can companies change depreciation and how calculate it. How calculate depreciation if company increases depreciation and salavege value (don't need memorize just know how to solve) Ex: Bill's Pizzas decides at the end of 2028 to extend the estimated useful life of the truck from 5 to 6 years and increase its salvage value to $2,200. The following table provides depreciation taken between 2025 and 2027 using the straight- line method:

(Companies can change depreciation methods, but have to be for legitimate reasons and disclose it) — Only change for future depreciation expense (adjustments made for future years only. Is like revised value problem from homework. — It's year 2028 for depreciation expense and calculation because that's the year depreiation (years) and salvage increased First 3 years used straigh-line with no change or revision = — given, so different from homework how solve, Book Value for 2027 = 13,000 -7,200 ( accumulated depreciation 3 years already take or used) = 5,200 Depreciation expense for 2028 = 5,700 ( book value from 2027 or last year) - (2,200) increase or revised salvage value x 1/ (6 years increased or changed years) -3 already taken) = (5,200 -2,200)/3 = 1,200 If it was for 2029 = Book Value 13,000 - 8,400 (7,200+1,200) ( accumulated depreciation 3 years already take or used) = 4,600 4,600 - 2,200 (same increase of salvage) = 2,400 x (6-4) = 2,400/2 =1,200

Quiz for review 1. Units-of-activity method: 2.Depreciation: 3. Ordinary Repairs: 4. Goodwill: 5. Straight-line method: 6. Trademark: 7. Intangible assets: 8. Depreciable cost: 9. Plant Assets: 10. Revenue Expenditures: Expenditures that are immediately charged against revenue

1. A depreciation method in which useful life is expressed in terms of the total units of production or use expected from the asset 2. The process of allocating to expense the cost of plant asset over its useful life in a rational and systematic manner 3.Expenditures to maintain the operating efficiency and expected productive life of the asset. 4. The value of all favorable attributes that related to a company that are not attributable to another specific asset. 5. A depreciation method in which companies expense an = amount of depreciation for year of the asset's useful life. 6. A word, phrase, jingle, or symbol that distinguishes or identifies a particular enterprise or product. 7. Rights, privileges, and competitive advantages, that is without physical substance, that result from the ownership of long-lived assets. 8. The cost of a Plant asset less it's salvage value

3. Record Disposal of PPE (Accounting procedure is the same regardless of disposal method):

1. Record depreciation up to the date of disposal (if disposal does not occur on the first day of the year, Jan 1st) 2. Eliminate book value of asset by zeroing out these accounts: Accumulated Depreciation - Disposed PPE Asset (Zeroing accumulated and depreciation expense by decreasing it and oppo of normal balance and something with accumulated depreciation normal balance = credit, decrease - debit) 3. Record (if) any cash received (so might skip step 3) 4. Recognize a gain or loss on disposal.

1.Record depreciation up to the date of disposal if disposal does not occur on the first day of the year. Ex: On July 1, 2025, Wright Company sells its used office furniture for $16,000 cash. The office furniture originally cost $60,000 and as of January 1, 2025, had accumulated depreciation of $41,000. Depreciation for the first six months of 2025 is $8,000.

1.Record depreciation up to the date of disposal if disposal does not occur on the first day of the year. Increase in Depreciation expense 8,000 =debit Increase Accumulated depreciation-Equipment 8,000 = credit — To record 6 months of depreciation expense in 2025 (before they sold equipment) From Jan 1st up to June 6 months, cause doesn't July 1st count (only 1 day), could subtract 7 month -1 to get answer Equipment from 1/1/25 to 7/1/25 stays the same. Accumulated depreciation from 1/1/25 was 41,000 + 8,000 (given) from current year (before sold equiment (7-1 months) = 49,000 accumulated depreciation as of sale of equipment.

What's step 2 in recording disposal of PPE (for sale): Ex:On July 1, 2025, Wright Company sells its used office furniture for $ 16,000 cash. The office furniture originally cost $60,000 and as of January 1, 2025, had accumulated depreciation of $41,000. Depreciation for the first six months of 2025 is $8,000 (question is same for each step)

2. Eliminate book value of the asset by zeroing out the following accounts: Accumulated Depreciation - Disposed PPE Asset Disposed PPE Asset Decrease in Accumulated Depreciation-Equiment 49,000 = debit (cause sold it) Decrease in Equipment = credit — (Cause zeroing out (decreasing it), so do opposite of normal balance debit accumulated depreciation (normal balance = credit) and decreasing equipment (normal balance = debit)_

3. What is step 3 Ex:On July 1, 2025, Wright Company sells its used office furniture for $ 16,000 cash. The office furniture originally cost $60,000 and as of January 1, 2025, had accumulated depreciation of $41,000. Depreciation for the first six months of 2025 is $8,000 (question is same for each step)

3. Record cash received Increase in accumulated depreciation-Equipment 49,000 = debit Increase in cash (what company sold PPE item for) 16,000 = debit Decrease in Equipment = credit Steps 1 to 3 for Sale of PPE will be same, for step 4 have determine if gain or loss on disposal which depends

Problem 5 from homework if salvage value and year is increased To check answer Depreciable value + salvage value = book value — Need Calculate deprecation expense then multiply by (3) years to accumulated depreciation. The subract cost - accumled depreication = book value, then divide years left = 7= 5,760

5) Original depreciation for year 3 =(72,000 (at cost) - Salvage Value (2,880)/8) = 8,640 Then multiply depreciation expense 8,640 x number of years 3 = 25,920 Book Value = Cost 72,000 - accumulated depreciation (25,920) = 46,080 — 3 years not 4 because said at the beginning of year 4 it estimated the new life to be 10 years and the new salvage value to be $5,760 (revised depreciation) For the remaining years = Remaining useful life (10-3) = 7 years. — Basically can get answer because it's revised salvage value = revised deprecation — Below is if calculated depreciable cost and accumulated depreciation at once Revised annual Depreciation = Book Value = Cost 72,000 - accumulated depreciation for 3 years (25,920) = (46,080- revised salvage value 5,760)/7 = 5,760 — It is Book value from previous year (3rd year) - salvage value/10 revised years - years used, (means how many years are left for years) — Revised annual depreciation is depreciation revised for each year

Journal Entry at initial acquisition at cost PPE (Property or land) or Entry to record initial acquisition of LAND: Ex: Hayes Company acquires land and paid $ 100,000 purchase price plus $ 15,000 for closing costs.

Add at purchase price + closing costs (includes all necessary expenditures to acquire asset and make it ready for intended use, closing cost is part of necessary expenditures) Increase in land = debit 115,000 Decrease in cash = debit 115,000 — To record purchase of land

Assets Turnover ratio

Assets Turnover ratio: Net Sales/Average Total Assets Average total assets = (beginning total assets + ending total assets)/2 = — Expressed as decimal and ex: 0.71 times (don't multiply by 100%. —How effectively a company generates sales or revenue from its assets, so the Higher ratio, (means company is > successful at operating). — Calculates sales a company generates from each $ invested in assets

How to calculate book value (same problem) Cost = 13,000, Expected Salvage Value = 1,000, estimated useful life (in years) = 5, and estimated useful life (in miles) = 100,000 (not needed for SL)

Book Value for 2025 = Cost 13,000 - accumulated depreciation (which 1st year depreciation expense) (2,400) = 10,600 Book value 2026: Book Value 2025 (10,600) - depreciation expense 2,400) or 13,000 cost - accumulated depreicaiton in 2026 (4,800) = 8,200, then keep on going till last year in this case year 5) Last year 2029 = 13,000 - accumulated depreciation -12,000 accumulated depreciation for that year = 1,000 End of depreciation, Book value = Salave Value

Have to know what PPE ratios means, but not formulas Return on assets ratio

Both the higher the better (Return on assets ratio and Assets Turnover ratio) Return on Assets ratio = Net income/Average Total assets — Average total assets = (beginning total assets + ending total assets)/2 (for both ratios) — Expressed as % so, multiply answer by 100 because out of 100, ex: 5% = 5 cents — Overall measure of profitability, so higher means > profitable — Amount of net income generated by each $ of assets

Step 4 for retirement (If it possible to be a gain?) Ex: On July 1, 2025, Wright Company retires its used office furniture. The office furniture originally cost $60,000 and as of January 1 , 2025, had accumulated depreciation of $41,000. Depreciation for the first six months of 2025 is $8,000 Look at picture

Can only be a loss or none (0) JE entry for retirement: Accumulated Depreciation and Equipment same as Sale Different no cash and loss or none on retirement of equipment. Decrease in Accumulated Depreciation-Equipment = debit 49,000 Loss on Retirement of Equipment = debit (losses are debited) = 11,000 Equipment 60,000 = debit Option #1 = Proceeds 0 (no cash) - 11,000 book value = -11,000 (negative = loss) Option #2 = now debits have to = credits, now it's debited because 49,000 + x = 60,000, then solve x, to get answer for Loss on Retirement of Equipment)

Journal Entries to record initial acquisition of BUILDING: Ex: Jones Company acquires a factory and pays $200,000 purchase price plus $10,000 for closing costs. Jones pays $60,000 to remove several walls so the factory can serve its intended purposes. All expenses are paid in cash.

Cause all expenses paid in cash = building = 200,000 purchase price + $10,000 closing costs + 60,000; remove several walls (reconditioning costs) so the factory can serve it's intended purpose) = 270,000. — Had to remove walls to get ready for intended use. (includes all necessary expenditures to acquire asset and make it ready for intended use, so when it said ,can serve it's intended purpose clue that it counts) Increase in building = debit 270,000 Decrease in cash = credit 270,000 — To record purchase of building

Example of RECORD INITIAL ACQUISITION AT COST: What happens if company spend more money on the PPE asset after acquisition (2 different scenarios)? Ex: Is for equipment, but could be PP too

Changing oil 250 = maintenance expense = expensing. JE = increase in Maintenance expense and decrease in cash 8,000 for new transmission large $ amount and improves truck = capitalizing cost (increase value of PPE). (Guessing if truck was worth 20,000 it woud increase value = 28,000) JE = Increase in Delivery truck (equipment) 8,000 and decrease in cash 8,000

Definitions: Cost, Salvage Value, Useful life, and book value (need for methods) (Really important to remember)

Cost = initial acquisition cost Salvage Value = estimate of the asset's value at the end of its useful life (amount you're able to sell at the end of its useful life) Useful Life = estimate of the asset's expected life (in years) Book Value = cost - accumulated depreciation End of accumulated depreciation (last year), Book value = Salvage Value It's cost - current year of accumulated depreciation Example:Book value in 2026 = 13,000 cost - accumulated depreicaiton in 2026 (4,800) = 8,200

Example of problem determine which account company would debit each of the costs

Cost included similar in land and building, so can overlap 1. Sales Tax on factory machinery purchases = equipment — Said equipment (machiney in factory), sales tax is in included in cost. 2. Painting and lettering on truck immediately upon purchases = equipment — (Delivery) Truck is considered equipment because used in daily operations and painting and lettering. —I think painting and lettering is assembly or freight-charges included in cost. 3. Installation and testing of equipment = equipment — Said equipment and installation and testing = assembly and testing costs included in equipment and machinery. 4. Real Estate broker's commission on land purchased = land — Real estate broker's commission = cost include in land (real estate commissions) 5. Insurance premium paid for 1st year's insurance on new truck — Paid insurance for whole year = prepaid insurance. I if it's an improvement building or land = land improvements 6. Cost of fence constructed on property pur

Straight Line Method Equation for Depreciation expense for Full year (Jan 1st) and how to calculate it. Ex: Bill's Pizzas purchased a small delivery truck on January 1, 2025 Cost = 13,000, Expected Salvage Value = 1,000, estimated useful life (in years) = 5, and estimated useful life (in miles) = 100,000 (not needed for SL) Look at picture and make sure can solve for accumulated depreciation, depreciation expenses, and book value

Dep expense for each for full year (Jan 1st) Equation: (Cost - Salvage Valu)e x 1/Useful life (amount of years) or divide by years (same thing) (Example 64 ⅛ sameting as 64/8) Ex: 2025 Depreciation expense = Cost (13,000) - Expected Salavage value 1,000) * ⅕ (I think dividing by 5 is easier) = 2,400 For 2025 accumulated depreciation = 2,400 (cause one year For 2026 Depreciation expense = it's the same = Cost (13,000) - Expected Salvage value 1,000) * ⅕ (I think dividing by 5 is easier) = 2,400 Accumulated depreciation = depreciation from last year and this, in this for full year, so will be same can multiply depreciation by amount of years and get rigth answer.

What is depreciation and what are 2 main types of depreciation and how to calculate them? How to calculate depreciation expense and accumulated depreciation (last part). What principle does depreciation expense follow?

Depreciation: spreads the cost of an asset over its useful life. It represents how much of an asset's value has been used) — Depreciation NOT a valuation (can't increase value of asset, reared at cost) — Alt definition: process of allocating PPE expenses over its useful life in a rational and systematic manner. Accumulated Depreciation: Cumulative decline in service potential (is a contra-asset account normal balance of credit) and decreases book value of PPE items. Depreciation Expense: Decline in service potential as a result of using PPE assets on income statement. — So, depreciation expanse = deprecation over 1 year that was used (during that year to generate revenue) Depreciation expense follows Expense Recognition principle. Expense to follow the period that it helps us generate revenue (match expense with revenue) Depreciation expense = depreciation for year (on income statement under operating expenses) Accumulated depreciation = cumulative amount of depreciation or add up amount of depreciation expense for each year.

examples of intangible assets, do they have infinite or definite amortization

Evidenced by contracts, licenses, other documents • Common examples include: • Patents (Amortized over shorter of 20 - year legal life or its useful life) • Copyrights (Amortized over its useful life which is life of the creator plus 70 years ) • Trademarks and trade names (indefinite life no amortization): (A word, phrase, jingle, or symbol that distinguishes or identifies a particular enterprise or product. ) • Franchises (depends on franchise is indefinite or definite) • Goodwill (value of brand, indefinite life no amorz) Value of brand (The value of all favorable attributes that relate to a company that are not attributable to another specific asset)

Straight Line Method Equation for Depreciation expense for partial year. Same problem, but purchased truck (equiment July 1st). Ex: Bill's Pizzas purchased a small delivery truck on July 1, 2025 Cost = 13,000, Expected Salvage Value = 1,000, estimated useful life (in years) = 5, and estimated useful life (in miles) = 100,000 (not needed for SL) Look at picture and make sure can solve for accumulated depreciation, depreciation expenses, and book value

Ex: Bill's Pizzas purchased a small delivery truck on July 1, 2025 = Cost 13,000 - Salvage Value 1,000/5 (amount of years) x months (6/12 or 1/2) (month purchases to Dec 1st) In ex: it's July 1st to Dec 13st (12-7+1 = 6 months), 12 is out year and 6 is date from purchased. So, the first year last year is partial, and years in between are full year. Because purchased on July 1st, first 6 months for 1st year, and last year is last 6 months. if it was in August it would 5 months in 1st year and 7 months in last year. — Notice goes into 2030, cause partial of year.

PPE reported on ___ as ___. How to record PPE. How to record accumulated depreciation? How to record deprecation on income statement? (Summary of last slide with information about what's on balance sheet and income statement) (ONLY study highlighted in blue0

Historical Cost Principle = companies have to record the PPE asset at cost (what they bought it for), includes all necessary expenditures to acquire asset and make it ready for intended use Accumulated depreciation = Cumulative decline in service potential (cumulative amount of depreciation) (is a contra-asset account normal balance of credit) and decreases book value of PPE items. — (Calculation: add up amount of depreciation expense for each year. — amount of depreciation that's recorded on books) Depreciation :process of allocating PPE expenses over its useful life in a rational and systematic manner. — Depreciation NOT a valuation (can't increase value of asset, recorded at at cost) Depreciation expense: Decline in service potential as a result of using PPE assets on income statement. — So, depreciation expanse = deprecation over 1 year that was used (during that year) — On income statement under operating expenses, decrease net income (cause expense)

Entry to record initial acquisition of EQUIPMENT: Ex: Lenard Company purchases a delivery truck with a purchase price of $23,000 and pays sales tax of $820. Related expenditures are motor vehicle license of $80, and a three- year accident insurance policy of $1,600. All expenses are paid in cash.

Increase in Equipment 23,820 (purchase price + sales tax) = debit Increase in License expense (motor vehicle license) $80 = debit Prepaid insurance (paid for 3 years = prepaid insurance) 1,600 = debit Decrease in cash = 25,500 credit — To record purchase of truck and related expenses (I guess that equipment is only one with specific of name truck) — Notice that all debits equipment, license expense, and prepaid insurance all add up to cash. If cash and cost don't equal have to add other related expenses, because cash has = cost + if any related expenses (Look at picture_ — So, cash has to = cost + if any other related expenses not included.for JE — Because said related expenditures: License and prepaid insurance not included in equipment entry (because related expenditures).

Record Annual Depreciation expense (in adjusting entry): Once depreciation expense is selected, and determined for the year, record in books using adjusting entry at fiscal year-end.

Increase in depreciation expense $500 Increase in accumulated depreciation-Equipment $500 — To record use of equipment for 12 months What is the impact of the adjusting journal entry above on the financial statements?: Depreciation expense of at least $500 on income statement On balance sheet = will show Equipment (asset) with a book value that is$500 less than the book value reported last year because AccumulatedDepreciation - Equipment will be $500 higher than last year.(like balance sheet problem (slide 21)

Part B and C Prepare the Journal entry to record 2025 depreciation

Increase in depreciation expense and increase in accumulated depreciation-Equiment = credit — Already calculated depreciation expense for 2025 which is the value for debits and credits — Delivery truck = equipment, it's accumulated depreciation-Equiment C) Prepare the journal entry to record 2026 depreciation — Same entry as B = Increase in depreciation expense and increase in accumulated depreciation-Equiment = credit — Value is same principle as stated in b.

How do I know if there is a gain or loss on disposal and how to calculate it? Picture is for Gain Sale of Equiment

Know have calculate gain or loss hardest part Option better because can work for sale of PPE and retirement Option 1:Procceeds (cash) > book value = gain — If proceeds < book value = loss — Losses are debited below PPE item (ex: equipment) — Gains are credited below cash (cause revenue (sale is credited) Either called Gain or Loss of Equipment (Option 2) — If accumulated depreciation + cash is > then equipment will = gain — If accumulated depreciation + cash is < then equipment will = loss — Debits and credits have to = each other, so if credit needs to added to = debit = gain, if debit needs to added to = credit = loss. — Losses are debited below PPE item (ex: equipment) Gains are credited below cash (cause revenue (sale is credited)

1. Record initial acquisition cost what's included and not included property (land), plant (building, and Equipment and machinery) Study costs included not included on picture and look at examples to get general idea (Look at picture)

Land/Land improvements Cost includes: Purchase price + closing costs + real estate commissions + accrued taxes + demolition and removal costs. Not included: Taxes incurred after purchase; proceeds from salvaged materials (after intended use) Buildings: Cost includes: Purchase price + closing costs + real estate commissions + reconditioning costs (anything necessary to get building ready for intended use — Not included building related expenses (would be operating expenses) after building is ready for use. Equipment and machinery: Cost include: Purchase price + sales taxes + freight-in charges + insurance during transit + assembly and testing costs (to make sure equipment is operable for intended use) Not included: Insurance policy that covers property after purchase; licenses; repairs and/or maintenance — Any additional regular repairs and maintenance as part of owning the equipment not be included.

Step 3 (for retirement) Ex: On July 1, 2025, Wright Company retires its used office furniture. The office furniture originally cost $60,000 and as of January 1 , 2025, had accumulated depreciation of $41,000. Depreciation for the first six months of 2025 is $8,000.

None with retirement (cause didn't sell it)

4. Entries may change because a loss is debited. HW6. Cheyenne Company has an old factory machine that cost $44,000. The machine has accumulated depreciation of $24,640). Cheyenne has decided to sell the machine. What entry would Cheyeen make to record sale of the machine for 11,640

Option 1: Proceeds or cash (11,640) - book value 19,630 = -7720 — Book Value (from part a) = Cost (44,000) - accumulated depreciation (24,640) = 19,360 Option 2: Debits must = credits, debits accumulated drpeication + cash = 36,280 Since it's the loss will be the difference between added up debits (36,280) -44,000 = -7,720, I think make it positive So Journal Entry for loss = Decrease in Accumulated depreciation = debit (24,640 Increase in cash (sold machine) = debit 11,640) Loss on Disposal of Plant Assets or called Loss on Sale of equimpent = debit (7,720) Decrease in equipment = credit (44,000) — To recognize a gain or loss on disposal

4. What's step 4 to record disposal of PPE) (refer back to slide 26 for gernal concept, look at next slide or from homework: HW 6. Cheyenne Company has an old factory machine that cost $44,000. The machine has accumulated depreciation of $24,640). Cheyenne has decided to sell the machine. What entry would Cheyeen make to record sale of the machine for 21,640 Picture from homework doesn't related to problem put helps with general concept.

Recognize a gain on disposal. Option 1 (for gain or loss) = Proceeds (cash) 21,640 - book value (19,360) =2,280 gain on Sale of equipment or also called Gain on Disposal of Plant assets because positive. — Book Value: Cost (44,000) - accumulated depreciation (24,640) = 19,360 Option 2: Know debit have to = credits and increase increase in debit mean a gain = Debits = Accumulated depreciation-Equiment (24,640) + Cash (21,640) = 46,280 Credits = Equipment 44,000 + x = 46,280 -44,000 -44,000 = 2,280 Journal Entry (for gain) Decrease in Accumulated depreciation = debit (24,640) Increase in cash (sold machine) = debit 21,640) Decrease in equipment = credit (44,000) Gain on Disposal of Plant Assets or Gain on Sale of Equiment = debit 2,280 — To recognize gain or loss on disposal of — Calculated Gain on disposal of plant assets, this is entry to record sale of PPE (1 of 3 disposal options)

1. Record initial acquisition at cost (general idea) what is generally included at cost

Record initial acquisition at cost — (Need to determine amounts included in costs, depends on specific PPE acquired) Purchase price + any costs to get it ready for its intended use (same thing as includes all necessary expenditures to acquire asset and make it ready for intended use) — If it's after intended use cost isn't included in at cost — If cash and cost don't = have to add other related expenses, because cash has = cost + if any related expenses

What are Plant Assets (PPE)? Resources with what 3 main characteristics? What common examples of PPE?

Resources with what 3 main characteristics? 1. Physical substance 2. Used in the operations of the business 3. Not intended for sale to customers Also, they are expected to be used for multiple years (long-term asset/investment) and experiences a decline (depreciation) in service potential over its useful lives (except for land which usually goes up in value). — (Inventory intended for sale, while PPE intended to help generate revenue over multiple years) — Land usually goes up in value, so doesn't depreciate Common Examples of PPE (1. Land 2. Land improvements 3. Buildings 4. Equipment 5. Machinery.) What are they also called? — (also called property, plant, and equipment, plant and equipment, and fixed assets)

Straight-Line Method (SL) Have to pay attention to date of purchase at cost (If on Jan 1st or another month) (Cause ran out character limited had to put in here) — The depreciation expense for 1st and last year only the same (if same amount of months for partial straight-line method. (From internet: If date is 16th or less full month of depreciation counts, don't know how to solve if > 16 days)

Results in the same depreciation expense each year (I think because even with partial if added them together would be the same) — If on Jan 1st full year depreciation expense same for each year — If not on Jan 1st, partial year, — With partial year = So, the first year and last year is partial, and years in between are full year. Because if you (ex) purchased on July 1st, first 6 months for 1st year, and last year is last 6 months. — To Solve for amount of months partial = 12 - Month+ 1 (to account for Dec 31st), to count the month have subtract then to add by 1) Ex example July 1st = 12-7 (7th month) + 1 = 6 months in 1st (6/12), and 6/12 in 2nd year (EX: Same amount of months (6 and 6 months, would be the same, if it was in August it would 5 months in 1st year and 7 months in last year. — Straight-line method (if full year, not partial): Depreciation expense is the same, and for accumulated depreciation its depreciation expense * amount of years.

What are the 3 main ways a company gets rid of PPE (RES) Equiment is ex (can only be 1 of 3 PPE)

Retirement: Equimpent is scrapped or discarded Sale: Equipment is sold to another party Exchange:Existing equipment is traded for new equipment.

Record Disposal of PPE (Retirement): Ex: On July 1, 2025, Wright Company retires its used office furniture. The office furniture originally cost $60,000 and as of January 1 , 2025, had accumulated depreciation of $41,000. Depreciation for the first six months of 2025 is $8,000. Only look at picture and bold

Steps 1 and 2 the same as sale. Step 1 (review) 1.Record depreciation up to the date of disposal if disposal does not occur on the first day of the year. Increase in Depreciation expense 8,000 =debit Increase Accumulated depreciation-Equipment 8,000 = credit — To record 6 months of depreciation expense in 2025 (before they sold equipment) Equipment from 1/1/25 to 7/1/25 stays the same. Accumulated depreciation from 1/1/25 was 41,000 + 8,000 (given) from current year (before sold eq uiment (7-1 months) = 49,000 accumulated depreciation as of sale of equipment. Step 2 (review): 2. Eliminate book value of the asset by zeroing out the following accounts: Accumulated Depreciation - Disposed PPE Asset Disposed PPE Asset Decrease Accumulated Depreciation-Equiment 49,000 = debit (cause sold it) Decrease in Equipment = credit

2. Record Annual Depreciation Expense: Before you can make entry need to determine depreciation expense (amount of depreciation for each year) Are there multiple US GAAP approved methods and what are they

Straight- line (most common and most important only used in class) Ignore other2 2. Units- of-activity 3 Declining balance Other

Example of partial year straight-line method from homework and overview of other important concept from chapter. What 4.Cullumber Company purchased a delivery truck for $40,000 on July 1, 2025. The truck has an expected salvage value of $6,000 and is expected to be driven 100,000 miles over its edited useful life of 8 years. Actual miles driven were 15,000 in 2025 and 12,000 in 2026. Cullumber uses the straight line method of depreicaiton.

Straight-Line method for depreciation expense in 2025 (partial year): (Cost (40,000) - Salvage value (6,000)/8 estimated useful life,depreciation) x ½ (months ),= $2,125 Formula for straight-line method partial = (Cost - Salvage Value/depreciation number of years of useful life) x months left (month acquired PPE item to Dec 1st) — Multiply by months (½ in this problem) last. — Cause it was purchased on July 1st, not whole year (July to Dec 31st = 6 months) — If purchased on Jan, since that's date for a full year, it would't be partial of year. Straight-Line method for depreciation expense in 2026 = Cost (Delivery truck = equipment) (40,000) - Salvage value (6,000) x ⅛ (estimated useful life (depreciation)) = Formula for staight-line method (full year) = (Cost - estimated salvage value) x estimated useful life accumulated/ divided by 8 — Notice cause it's 2nd year it's the full year while the 1st year was just 6 months.

What are intangible assets?

recorded at cost (Rights, privileges, and competitive advantages without physical substance) — Amortization is like deprecation intangible assets but works a little differently. How to record intangible assets (amortization): process of reducing the value of an asset over a specific time period. This time period is usually the asset's estimated useful life. Includes: all expenditures necessary for the company to acquire the right, privilege, or competitive advantage, and excludes costs of developing intangible asset(s). — Either called limited life or indefinite life — Only limited life intangible assets are amortized!

Depreciable Cost

the cost of a plant asset - its salvage value

D) Show how the truck would be reported in the Dec 31, 2026 balance sheet

— Because Balance only 2 things= Equipment (Asset) 40,000 (at cost) Less: Accumulated depreciation-Equipment cause it's 2026 accumulated depreciation it's the add depreciation expense from 2025 (2,125) + (4250) = 6375 Answer = Equipment (40,000) - accumulated depreciation-equipment = 33,625

RECORD INITIAL ACQUISITION AT COST What happens if company spend more money on the PPE asset after acquisition (2 different scenarios) (EC)? (only study blue)

— Expense (Expensing) : Regular (operating) expense that helps company generate revenue for 1 period If money is spent on ordinary repairs/maintenance; no changes to the PPE account (doesn't increase value of PPE) and recognize expense on income statement Capitalization (Capitalizing): future benefit company for > than 1 period like PPE (long-term asset) — So, depreciation expense reduces revenue (as expenses do), but slowly overtime (> than 1 period) — (Cause JE for Depreciation Expense and accumulated depreciation) If the money is spent on significant additions or improvements; make it an asset (account) like equipment) record depreciation expense over its useful life (make it worth >/extend its useful life than it was before. — (Increases value of PPE (+A) and recognize the expense slowly over time (depreciation expense on income statement)) — Has to significant amount of $

What happens if date is near end of Month (for partial year)

— I think June 30th, is close to July, so it's 12-7 (July)+ 1 = 6 months). So I think you count as next month. Another example March 29 = 12-4+ 1 = 9 months