ch 10 PPE and intangible assets: Acquisition

An asset, other than financial assets, that has no physical substance is referred to as a(n)

intangible asset.

From a financial reporting perspective, property, plant, and equipment and intangible assets exhibit the following characteristics

long-lived revenue-producing

Fixed-asset turnover ratio

net sales / Average fixed asset

Benefits of natural resources are derived from

their physical consumption

An exclusive right to display a word, slogan, symbol, or emblem that distinctively identifies a company, product, or service is referred to as a

trademark.

The following expenditures relate to equipment purchased by Symington Corporation: Purchase price $48,000 Transportation costs 2,400 Installation and special wiring 1,500 Testing 6,000 For what amount will Symington record the purchase of equipment?

$57,900

Cost of acquiring a building usually includes:

- Purchase price -Realtor commissions and legal fees -Reconditioning costs (Refurbishing, remodeling, or otherwise modifying to suit the needs of the new owner)

describe buildings and theyre typical acquisition cost

- Structures that include warehouses, plant facilities, and office buildings -Aquisition: purchase price, attorney's fees. commissions, and reconditioning

Examples of Intangible assets

- patents -copyright -trademarks -franchises -goodwill`

Cost of equipment includes.

- purchase price - any sales tax - transportation costs - expenditures for installation and testing - legal fees to establish title - any other costs to bring the asset to its conditions and location for use

Provisions of standards to address ARO's (asset retirement obligations)

- scope -recognition -measurement -Present value calculations

Costs of natural resources If developed

-Acquisition costs -exploration costs -Development costs -Restoration costs

Examples of some land improvements

-Cost of parking lots -Driveways -Private roads -Fences -And sprinkler systems

Describe land improvements and its acquisition costs

-Enhancements to property such as parking lots, driveways, private roads, fences, landscaping, and sprinkler systems -acquisition: separately identifiable costs.

Describe Natural resources and they aquisition costs

-Productive assets that are physically consumed in operations such as timber, mineral deposits, and oil and gas reserves - Aquisition: Acquisition, exploration, development, and restoration costs

Costs of natural resources if Purchased

-Purchase price -Any other costs necessary to bring the asset to condition and location for use

Costs that should be included in Land

-Purchase price -Attorney fees -Real estate agent commissions -Costs related to title and title search -Recording fees -Any back taxes, Liens, Mortgages, or other obligations\ - expenditures such as clearing, filling, draining, and even removing (razing) old buildings

Land improvements costs are ...

-Separately identified and capitalized -Depreciated over period benefited by their use

The balance sheets of Davidson Corporation reported net fixed assets $620,000 at the end of Year 1 and $340,000 at the end of Year 2. Net sales for Year 2 totaled $1,440,000. What is the fixed-asset turnover ratio for Year 2?

3.0

If a company exchanges an asset with a book value of $260,000, an original cost of $500,000, and a fair value of $300,000 plus cash of $100,000 for a new asset, what is the gain or loss recognized on the transaction?

40,000 just the difference between FV and BV

Mendelson Laboratories purchased engineering equipment at a cost of $420,000. Shipping costs totaled $15,000. Installation cost was $8,000. An additional electrical line had to be run to the equipment at a cost of $3,000. Labor and testing costs totaled $6,000. Materials used up in testing cost $3,000. The capitalized cost is

455,000

3 long lived revenue-producing assets

> PPE >Natural resources > Intangible assets

Property, Plant, and equipment typical acquisition Costs

All expenditures necessary to get the asset in condition and location for its intended use.

What is goodwill

Amount paid over fair value of net assets acquired in the pruchase of part or all of a business

What is asset retirement obligation

An existing legal obligation associated with the disposition/ retirement of a tangible, long-lived asset

Oil and gas exploration company might be required to restore land to its original condition after extraction is completed is an example of

Asset retirement obligations

Interest capitalized during construction period for:

Assets built for a company;s own use -Assets constructed as discrete projects for sale or lease

what does is mean to purchase an intangible asset

Buying things such as existing patents, Copyrights, trademarks form other entities

Book value =

Cost - Accumulated depreciation and depretion

Boston Company purchased equipment by signing a noninterest-bearing note with a face value of $64,800. The list price of the equipment is $50,000. Prepare the appropriate journal entry to record the purchase of the equipment.

DBt Equipment 50,000 discount on notes payable 14,800 CT Notes payable 64,800

Saunders Company purchased equipment by signing a noninterest-bearing note of $21,000 with payment due in three years. The equipment is custom-built, so its cash price is unavailable. Using a rate of 9%, which reflects the appropriate interest rate for a loan of this type of loan, the present value of the note is $16,216. Prepare the appropriate journal entry to record the purchase of the equipment.

DT: Equipment 16216 Discount on notes payable 4784 CT: Notes payable 21000

Spice World Corporation purchased for $180,000 cash the following assets: land with a fair value of $60,000, a building with a fair value of $90,000, equipment with a fair value of $35,000 and inventory with a fair value of $15,000. Prepare the appropriate journal entry for Spice World's purchase.

DT: Land 54000 Building 81000 Equipment 31500 Inventory 13500 CRT: Cash 180000

What does is mean to develope an intangible asset

Develope a new product internally that is then patented

What does it mean to have an amortized intangle asset

Finite usefule lived

Indicate which costs would be capitalized as part of the cost of manufacturing equipment. -training - freight- in - set up cost - depreciation for the first month -insurance during transit

Freight in set up cost Inusurance during transit

what does it mean to have a not amortized intangible asset

Indefinite useful lives

Examples of PPE

Land, building, equipment, machinery, furniture, autos, and trucks

what is a patent

Legal protection for 20 years to use a process or product

Examples of natural resources

Oil and Gas deposits, timber tracts, and mineral deposits

Property, plant, and equipment description

Productive assets that derive value from long term use in operations rather than from resale

Intangible assets represent exlusive rights that prived benefits to the owner even thought they lack physical substance. Theyre difficult to antipate the timing and the existance of furture benefits attributable to many intaglible assets. Companies can either _________ or ________ intanable assets

Purchase develope

Which of the following items should be capitalized in the cost of equipment? -repair costs for first year of operations -Purchase price -insurance on equipment during shipping -installation and testing of equipment -freight to deliver the equipment to its location

Purchase price insurance on equipment during shipping installation and testing of equipment freight to deliver the equipment to its location

Cost =

Purchase price + All other costs necessary to get the asssets ready for use

Initial cost =

Purchase price + all expenditures necessary to bring the asset to its desired condition and location for use.

Describe Land and its typical acquisition costs

Real property used in operations (land held for speculative investment or future use is reported as investments or other assets ) -Purchase price, attorney's fees, title, recording, fees, commissions, back taxes, mortages, liens, clearing, filing, draining, and removing old buildings

What is an exception of land cost that are not included?

The current portion of property taxes.

Proceeds from the sale of salvage materials after purchases have what affect on the cost of land

This reduces it.

natural resources include

Timber tracts, Mineral deposits, and oil and gas deposits

Land improvements usually have useful lives that are estimable.. T/F?

True

True or false: The initial cost of property, plant, and equipment includes the purchase price and all expenditures necessary to bring the asset to its desired condition and location for use.

True

Describe Equipment and its typical acquisition costs.

a broad term that includes machinery, computers, and other office equipment, vehicles, Furniture, and fixtures - Purchase price (less discounts), taxes, transportation, installation, testing, trial runs, and reconditioning

when expenditures produce future benefits how do you record them

as an asset and expense in future periods

The purchase price and all costs to bring an asset to its desired condition and location for use should be ______.

capitalized

Expenditures needed to get land ready for its intended use should be:

capitalized as part of the cost of land

A(n) ______ is protected by law and gives the creator of a published work the exclusive rights to reproduce and sell the work for the life of the creator plus 70 years.

copyright

The costs incurred after a natural resource has been discovered but before production begins are referred to as

development costs.

Expenditures relating to a search for natural resources are referred to as

exporation costs

An asset representing the value of a company over and above its identifiable tangible and intangible assets is referred to as

goodwill

Which of the following items are intangible assets? (Select all that apply.) Multiple select question. accounts receivable land goodwill buildings trademarks

goodwill trademarks

what does the fixed asset turnover ratio provides an idication of

how efficiently a compnay utilizes its fixed assets to generate revenue

when expenditures that produce benefits only in the current period are expensed when?

immediately

interest not capitalized during construction period for

inventories routineley manufactured in large quantities on a repetitive basis assets that already are in use or are ready for their intended use (expensed as incurred)

What is a copyright

legal protection for 70 year + life of the creator for creative works

what are AROs recognized as

liabilities measured at fair value

GAAP requires that an existing legal obligation associated with the retirement of a tangible, long-lived asset be recognized as a

liability and measure at fair value if value can be reasonably estimated

The exclusive legal right to manufacture a product or to use a process is called a(n)

patent

Long-term assets are typically classified in one of these two categories: Multiple select question.

property, plant, and equipment intangible assets

Sarah purchases land to be used for a new storage facility. Which of the following items are capitalized in the cost of land? (Select all that apply.) Multiple select question. -real estate agent commissions -current year's property taxes -legal fees to secure title -costs to remove an old building

real estate agent commissions legal fees to secure title costs to remove an old building

Manfred Mining Company is required to restore a piece of land to its original condition after it completes extraction of precious metals. From a financial reporting perspective, the related obligation is referred to as an asset

retirement obligation.

The sum of Cost of equipment represents the initial amount to be capitalized (recorded as an asset) in what?

the balance sheet