Beruflich Dokumente
Kultur Dokumente
7-1
7-2
7-3
Purchase price
Taxes
Commissions
LO 1
Land
Cost of land includes:
7-4
Brokerage commission
Survey fees
Legal fees
LO 1
Illustration
FedEx signs a $300,000 note payable to purchase 20 acres of land
for a new shipping site. FedEx also pays $10,000 for real estate
commission, $8,000 of back property tax, $5,000 for removal of an
old building, a $1,000 survey fee, and $260,000 to pave the parking
lotall in cash. What is FedExs cost of this land?
Land
Purchase price
$300,000
10,000
8,000
Removal of building
5,000
Survey fee
1,000
0
Cost of Land
7-5
$324,000
LO 1
Illustration
FedEx signs a $300,000 note payable to purchase 20 acres of land
for a new shipping site. FedEx also pays $10,000 for real estate
commission, $8,000 of back property tax, $5,000 for removal of an
old building, a $1,000 survey fee, and $260,000 to pave the parking
lotall in cash.
FedEx records the purchase of the land as follows:
Account
Land
Credit
324,000
Notes Payable
300,000
24,000
Cash
7-6
Debit
LO 1
Architectural fees
Building permits
Contractors charges
7-7
Purchase price
Brokerage commission
LO 1
7-8
Purchase commission
Installation costs
LO 1
Leasehold improvements
7-9
LO 1
7-10
LO 1
Illustration
FedEx first figures the ratio of each assets market value to the total
market value. These percentages are then used to determine the
cost of each asset:
LO 1
7-11
Copyright 2015 Pearson Education Inc. All rights reserved.
Illustration
Account
Land
Credit
280,000
2,520,000
Building
2,800,000
Cash
7-12
Debit
LO 1
Answer
7-13
*$40,000/$150,000 = 0.267
Copyright 2015 Pearson Education Inc. All rights reserved.
LO 1
Learning Objective
2. Distinguish a capital expenditure from an
immediate expense
7-14
7-15
LO 2
Learning Objective
3. Measure and record depreciation on plant assets
7-16
7-17
LO 3
Exhibit 7-3 | Depreciation: Allocating Costs to Periods in Which Revenues Are Generated
7-18
LO 3
Cost
7-19
Estimated
Useful Life
Estimated
Residual
Value
LO 3
Cost
Estimated
Residual
Value
Not depreciated
LO 3
Depreciation Methods
Three Main Methods
Straight-line
Units-ofproduction
Exhibit 7-4 |
Depreciation
Computation
Data
7-21
Copyright 2015 Pearson Education Inc. All rights reserved.
Doubledecliningbalance
Depreciation Methods
Three Main Methods
Straight-line
7-22
Units-ofproduction
Doubledecliningbalance
LO 3
Straightline
Exhibit 7-4
=
=
7-23
Copyright 2015 Pearson Education Inc. All rights reserved.
Straight-line
The entry to record depreciation is
Account
Depreciation Expense - Truck
Debit
Credit
8,000
8,000
7-24
LO 3
Depreciation Methods
As an asset is used in operations and depreciated
Accumulated
depreciation
increases
Book value
decreases
Assets final book value =
Residual value
7-25
LO 3
Answer
Cost
$10,000
- 2,000
Depreciable cost
7-26
8,000
$1,600
LO 3
Depreciation Methods
Three Main Methods
Straight-line
7-27
Units-ofproduction
Doubledecliningbalance
LO 3
Units-ofProduction
Exhibit 7-4
=
=
7-28
LO 3
Units-of-Production
Assume that FedEx expects to drive the truck 20,000 miles
during the first year, 30,000 during the second, 25,000 during
the third, 15,000 during the fourth, and 10,000 during the fifth.
Exhibit 7-6 shows the UOP depreciation schedule.
Exhibit 7-6 | Units-of-Production (UOP) Depreciation Schedule for Truck
LO 3
Units-of-Production
Exhibit 7-6 | Units-of-Production (UOP) Depreciation Schedule for Truck
Debit
Credit
8,000
8,000
LO 3
Depreciation Methods
Three Main Methods
Straight-line
7-31
Units-ofproduction
Doubledecliningbalance
Writes off a larger amount of the assets cost near the start of its
useful life than the straight-line method
LO 3
Doubledecliningbalance
Exhibit 7-4
1
Useful life, in years
1
=
=
7-32
x2
x2
5 years
20% x 2 = 40%
LO 3
Double-declining-balance
Exhibit 7-7 | Double-Declining-Balance Depreciation Schedule for Truck
7-33
LO 3
Double-declining-balance
Exhibit 7-7 | Double-Declining-Balance Depreciation Schedule for Truck
LO 3
Double-declining-balance
Exhibit 7-7 | Double-Declining-Balance Depreciation Schedule for Truck
LO 3
Double-declining-balance
DDB method differs from other methods in two ways:
7-36
LO 3
Answer
7-37
LO 3
7-38
Units-ofproduction
Best for assets that
wear out because
of use
Doubledecliningbalance
Best for assets that
generate more
revenue early in
useful life
LO 3
7-39
LO 3
7-40
LO 3
7-41
LO 3
Illustration
Ralph's Pizza bought a used Toyota delivery van on January 2,
2014, for $13,000. The useful life of the van is 5 years. At the
end of its useful life, Ralph's officials estimated that the vans
residual value would be $1,000. Prepare a schedule of
depreciation expense per year for the van using the straightline method.
7-42
LO 3
2014
$ 12,000
2015
12,000
2016
$ 2,400
$ 2,400
$ 10,600
20
2,400
4,800
8,200
12,000
20
2,400
7,200
5,800
2017
12,000
20
2,400
9,600
3,400
2018
12,000
20
2,400
12,000
1,000
7-43
20%
LO 3
Illustration
Ralph's Pizza bought a used Toyota delivery van on January 2,
2014, for $13,000. The van was expected to remain in service
for five years (100,000 miles). At the end of its useful life,
Ralph's officials estimated that the vans residual value would be
$1,000. The van traveled 15,000 miles the first year, 30,000
miles the second year, 20,000 miles the third year, 25,000 miles
in the fourth year, and 10,000 miles in the fifth year.
Prepare a schedule of depreciation expense per year for the
van using the units-of-production method.
7-44
LO 3
Illustration: Units-of-Production
2014
15,000
$ 0.12
$ 1,800
$ 1,800
$ 11,200
2015
30,000
0.12
3,600
5,400
7,600
2016
20,000
0.12
2,400
7,800
5,200
2017
25,000
0.12
3,000
10,800
2,200
2018
10,000
0.12
1,200
12,000
1,000
Depreciation per
unit of output
$13,000 - $1,000
100,000 miles
Illustration
Ralph's Pizza bought a used Toyota delivery van on January 2,
2014, for $13,000. The useful life of the van is 5 years. At the
end of its useful life, Ralph's officials estimated that the vans
residual value would be $1,000.
Prepare a schedule of depreciation expense per year for the
van using the double-declining-balance method.
7-46
LO 3
2014
13,000
2015
7,800
2016
40%
$ 5,200
$ 5,200
$ 7,800
40
3,120
8,320
4,680
4,680
40
1,872
10,192
2,808
2017
2,808
40
1,123
11,315
1,685
2018
1,685
40
12,000
1,000
685*
757
LO 3
7-48
LO 3
7-49
LO 3
7-50
LO 3
7-51
$500,000 - $80,000
20
= $21,000
LO 3
7-52
LO 3
Change in Estimate
Illustration: Arcadia HS, purchased equipment for $510,000
which was estimated to have a useful life of 10 years with a
residual value of $10,000 at the end of that time. Depreciation has
been recorded for 7 years on a straight-line basis. In 2014 (year 8),
it is determined that the total estimated life should be 15 years with
a residual value of $5,000 at the end of that time.
Questions:
757
No Entry
Required
LO 3
Change in Estimate
Equipment cost
Residual value
Depreciable base
Useful life (original)
Annual depreciation
After 7 years
$510,000
First,
First,establish
establishNBV
NBV
- 10,000
at
atdate
dateof
ofchange
changeinin
500,000
estimate.
estimate.
10 years
$ 50,000 x 7 years = $350,000
7-57
Equipment
Accumulated depreciation
$510,000
350,000
$160,000
LO 3
Change in Estimate
Net book value
Residual value (new)
Depreciable base
Useful life remaining
Annual depreciation
After 7 years
$160,000
5,000
155,000
8 years
$ 19,375
Depreciation
DepreciationExpense
Expense
calculation
calculationfor
for2014.
2014.
7-57
19,375
LO 3
757
LO 3
Learning Objective
4. Analyze the effect of a plant asset disposal
7-57
LO 4
7-58
Copyright 2015 Pearson Education Inc. All rights reserved.
Account
Accumulated Depreciation-Machinery
Credit
60,000
60,000
Machinery
7-59
Debit
LO 4
Account
Debit
Accumulated Depreciation-Equipment
50,000
10,000
Credit
Equipment
60,000
LO 4
7-61
If cash
received is
greater than
book value
GAIN
If cash
received is
less than book
value
LOSS
LO 4
Debit
Credit
750
750
LO 4
7-63
LO 4
7,300
Accumulated Depreciation-Equipment
3,750
Equipment
Gain on Sale of Equipment
7-64
Debit
Credit
10,000
1,050
LO 4
7-65
LO 4
7-66
Cash received
$2,600
- 3,654
Loss on sale
$1,054
LO 4
Account
Depreciation Expense
Debit
1,566
1,566
Accumulated Depreciation
Cash
2,600
Accumulated Depreciation
5,046
1,054
8,700
Fixtures
7-67
Credit
LO 4
7-68
Nonmonetary exchange
LO 4
Illustration: Papa Johns trades in the old automobile for a new one
with a fair market value of $15,000 and pays cash of $10,000. The old
auto has a cost of $9,000 and accumulated depreciation of $8,000.The
implied fair value of the old car is $5,000 ($15,000 $10,000). The
cost of the new delivery car is $15,000 (fair value of the old asset,
$5,000, plus cash paid, $10,000). The pizzeria records the exchange
transaction:
Account
Delivery Auto (new)
Accumulated Depreciation (old)
Delivery Auto (old)
Credit
15,000
8,000
9,000
10,000
Cash
Gain on Exchange of Delivery Auto
7-69
Debit
4,000
LO 4
7-70
LO 4
Learning Objective
5. Apply GAAP for natural resources and intangible
assets
7-71
7-72
LO 5
Account
Oil Reserve
Credit
100,000,000
100,000,000
Cash
7-73
Debit
LO 5
Account
Oil Inventory (3,000,000 barrels x $10)
Debit
30,000,000
30,000,000
Oil Reserve
Cost of Oil Sold (1,000,000 barrels x $10)
Oil Inventory
7-74
Credit
10,000,000
10,000,000
LO 5
No physical form
Two categories
Finite lives
Straight-line method
Indefinite lives
7-75
Amortization recorded
LO 5
7-76
LO 5
Account
Jan 1
Patents
Cash
7-77
Debit
Credit
170,000
170,000
LO 5
Account
Dec 31
Amortization Expense-Patents
Patents
Debit
Credit
34,000
34,000
LO 5
7-78
Copyright 2015 Pearson Education Inc. All rights reserved.
7-79
LO 5
7-80
Indicated by TM or
LO 5
7-81
LO 5
7-82
Not amortized
LO 5
Learning Objective
6. Explain the effect of an asset impairment on the
financial statements
7-83
7-84
LO 6
Net book
value
>
Estimated future
cash flows
Ste
p2
7-85
Net book
value
Fair
value
Impairment
loss
LO 6
ASSET IMPAIRMENT
To illustrate, lets assume that FedEx has a long-term asset with
the following information as of May 31, 2012:
Net book value
$100 million
70 million
Ste
p1
Net book
value
>
$100 million
>
Estimated future
cash flows
Asset is Impaired
7-86
Copyright 2015 Pearson Education Inc. All rights reserved.
$80 million
LO 6
ASSET IMPAIRMENT
To illustrate, lets assume that FedEx has a long-term asset with
the following information as of May 31, 2012:
Net book value
$100 million
70 million
Ste
p2
7-87
Net book
value
Fair
value
Impairment
loss
$100 million
$70 million
$30 million
LO 6
ASSET IMPAIRMENT
To illustrate, lets assume that FedEx has a long-term asset with
the following information as of May 31, 2012:
Net book value
$100 million
70 million
Account
May 31
Impairment Loss
Long-term Asset
7-88
Debit
Credit
30,000,000
30,000,000
LO 6
Learning Objective
7. Analyze rate of return on assets
7-89
LO 7
Net profit
margin ratio
Net income
=
Net sales
LO 7
Total asset
turnover
7-92
Net sales
Average total
assets
LO 7
Net profit
margin ratio
Total asset
turnover
7-93
Net income
=
Net sales
Net sales
Average total
assets
LO 7
Net profit
margin ratio
Total asset
turnover
Return on
assets
7-94
LO 7
Learning Objective
8. Analyze the cash flow impact of long-lived asset
transactions
7-95
Section
Depreciation
Operating
Investing
Investing
7-96
Description
Added to net
income as a
reconciling item
Cash proceeds
from sales of plant
assets (inflow)
Cash purchases
(outflow)
LO 8
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