Read Article? https://www.investors.com/news/target-stock-spikes-to-11-month-high-on-earnings-beat/ Provide a measure of information about the topic's significance to th

31 May Read Article? https://www.investors.com/news/target-stock-spikes-to-11-month-high-on-earnings-beat/ Provide a measure of information about the topic’s significance to th

Posted at 11:07h in Finance / Accounting by

1. Read Article

https://www.investors.com/news/target-stock-spikes-to-11-month-high-on-earnings-beat/

Provide a measure of information about the topic’s significance to the current business climate. A minimum of 2 reference sources are required for full credit. The article review should be a minimum of 300 words and be submitted in proper APA format.

I. The article review layout is simple. It should consist of the following three headings:

– Overview/Summary

– Opinion/Analysis

– Relevance to business climate.

Note:

A. The Opinion/Analysis section should demonstrate your critical thinking and analysis of the subject matter.

B. The Relevance section should offer an insight-building summary, recommendations, findings and conclusions.

C. PPTX provided for reference (slide 21-)

NO AI, Chegg, Course Hero, etc.

nobles_acct12_ppt_10.pptx

Horngren’s Accounting: The Financial Chapters

Twelfth Edition

Chapter 10

Plant Assets, Natural Resources, and Intangibles

If this PowerPoint presentation contains mathematical equations, you may need to check that your computer has the following installed:

1) MathType Plugin

2) Math Player (free versions available)

3) NVDA Reader (free versions available)

Learning Objectives (1 of 2)

10.1 Measure the cost of property, plant, and equipment

10.2 Account for depreciation using the straight-line, units-of-production, and double-declining-balance methods

10.3 Journalize entries for the disposal of plant assets

Learning Objectives (2 of 2)

10.4 Account for natural resources

10.5 Account for intangible assets

10.6 Use the asset turnover ratio to evaluate business performance

10.7 Journalize entries for the exchange of plant assets (Appendix 10A)

Learning Objective 10.1

Measure the cost of property, plant, and equipment

How Does a Business Measure the Cost of a Property, Plant, and Equipment? (1 of 4)

Property, plant, and equipment (PP&E) are long-lived, tangible assets used in the operations of a business.

Examples:

Land

Buildings

Equipment

Furniture

Fixtures

Automobiles

Plant assets are long-lived, tangible assets used in the operation of the business. These assets include land, buildings, equipment, furniture, fixtures, and automobiles. Often, property, plant, and equipment are referred to as plant assets, operational assets, or fixed assets in financial statements.

How Does a Business Measure the Cost of a Property, Plant, and Equipment? (2 of 4)

Plant assets are different from other assets because plant assets are long term (lasting several years).

The cost of a plant asset is allocated to an expense over the years that the asset is expected to be used.

The allocation of a plant asset’s cost over its useful life is called depreciation and follows the matching principle.

Plant assets are different from other assets, such as office supplies, because plant assets are long term (lasting several years). This requires a business to allocate the cost of the asset over the years that the asset is expected to be used. This allocation of a plant asset’s cost over its useful life is called depreciation and follows the matching principle. Depreciation is the process by which businesses spread the allocation of a plant asset’s cost over its useful life. The matching principle ensures that all expenses are matched against the revenues of the period. Because plant assets are used over several years, a business will record a portion of the cost of the asset as an expense in each of those years. All plant assets except land are depreciated. We record no depreciation for land because it does not have a definitive or clearly estimable life, so it is difficult to allocate the cost of land.

How Does a Business Measure the Cost of a Property, Plant, and Equipment? (3 of 4)

Exhibit 10-1 Life Cycle of a Plant Asset

Exhibit 10-1 summarizes the life cycle of a plant asset in a business. The business begins by acquiring the asset and recording the asset on its books. This involves determining the asset cost that is reported on the balance sheet. As the business uses the asset, it must record depreciation expense. In addition, the business incurs additional expenses (such as repairs and maintenance) related to the asset. Finally, when the asset has reached the end of its useful life, the business disposes of the asset. Each of these stages in the life of a plant asset must be recorded on the business’s books.

How Does a Business Measure the Cost of a Property, Plant, and Equipment? (4 of 4)

A plant asset is recorded at historical cost—the amount paid for the asset.

This follows the cost principle, which states that acquired assets and services should be recorded at their actual costs.

The actual cost is the purchase price plus taxes, commissions, and other amounts paid to get the asset ready for its intended use.

Plant assets are recorded at historical cost—the amount paid for the asset. This follows the cost principle, which states that acquired assets (and services) should be recorded at their actual cost. The actual cost of a plant asset is its purchase price plus taxes, purchase commissions, and all other amounts paid to ready the asset for its intended use.

Land and Land Improvements (1 of 5)

The cost of land includes the following amounts paid by the purchaser:

Purchase price

Brokerage commission

Survey and legal fees

Delinquent property taxes

Title transfer fees

Cost of clearing the land

The cost of land includes the purchase price, brokerage commissions, survey and legal fees, delinquent property taxes, title transfers fees, the cost of clearing the land, and the cost of removing old buildings from the land. Land is a unique kind of plant asset that is never depreciated.

Land and Land Improvements (2 of 5)

The cost of land does not include:

Fencing

Paving

Sprinkler systems

Lighting

Signs

These separate plant assets are called land improvements and, unlike land, are subject to depreciation.

The cost of land does not include fencing, paving, sprinkler systems, lighting, signs, and other improvements to the land such as landscaping. These costs are collectively referred to as land improvements. A land improvement is a depreciable improvement to land. These costs are separately identified from the land itself, and they are depreciated.

Land and Land Improvements (3 of 5)

Smart Touch Learning purchases land on August 1, 2019, for $50,000 with a note payable. Other costs include $4,000 in delinquent property taxes, $2,000 in transfer taxes, $5,000 to remove an old building, and a $1,000 survey fee.

Exhibit 10-2 Measuring the Cost of Land

Assume that Smart Touch Learning buys land on August 1 for $50,000 and pays for it with a note payable. Other costs related to this transaction include $4,000 in delinquent property taxes, $2,000 in property transfer taxes (or fees), $5,000 to remove an old building from the site, and $1,000 for a survey of the property. All other items are paid for with cash.

What is the cost of the land on Smart Touch Learning’s books? As you can see from the computation in Exhibit 10-2, the cost of the land is not only the acquisition cost of $50,000. It also includes an additional $12,000 of costs that bring the total cost of the land on the books to $62,000.

Land and Land Improvements (4 of 5)

The entry to record the purchase of the land on August 1, 2019:

Smart Touch Learning capitalizes the cost of the land at $62,000.

Capitalized means that an asset account was debited (increased) because the company acquired an asset.

The journal entry to record the acquisition of the land would include a debit to Land for $62,000 and credits to Notes Payable for $50,000 and to Cash for $12,000 (related to the additional costs).

We would say that Smart Touch Learning capitalized the cost of the land at $62,000. Capitalized means that an asset account was debited (increased) because the company acquired an asset. So, for our land example, Smart Touch Learning debited the Land account for $62,000, the capitalized cost of the asset.

Land and Land Improvements (5 of 5)

Smart Touch Learning then pays $20,000 for fences, paving, lighting, and signs on August 15, 2019:

Land and land improvements are two entirely separate assets.

Land improvements are depreciated.

Land and land improvements are two entirely separate assets. Recall that land is not depreciated. However, the cost of land improvements is depreciated over that asset’s useful life.

Buildings

The costs of a building include:

Constructing a Building

Architectural fees

Building permits

Contractor charges

Payments for materials, labor, and miscellaneous costs

Purchasing an Existing Building

Purchase price

Costs to renovate the building to ready it for use, which may include any of the charges listed in the “Constructing a Building” column

The costs of a building include:

Constructing a Building

Architectural fees

Building permits

Contractor charges

Payments for materials, labor, and miscellaneous costs

Purchasing an Existing Building

Purchase price

Costs to renovate the building to ready it for use, which may include any of the charges listed under “Constructing a Building”

Machinery and Equipment

The cost of machinery and equipment includes:

Purchase price (less any discounts)

Transportation charges

Insurance while in transit

Sales tax and other taxes

Purchase commission

Installation costs

Testing costs (prior to use of the asset)

The cost of machinery and equipment includes the purchase price, transportation charges, insurance while in transit, sales tax and other taxes, purchase commission, installation, and testing costs. After the asset is up and running, the company no longer capitalizes the cost of insurance, taxes, ordinary repairs, and maintenance to the Equipment account. From that point on, insurance, taxes, repairs, and maintenance costs are recorded as expenses.

Furniture and Fixtures

Examples of furniture and fixtures include:

Desks

Chairs

File cabinets

Display racks and shelving

The costs of furniture and fixtures include:

Basic cost of each asset (less any discounts)

All other costs to ready the asset for its intended use

Furniture and fixtures include desks, chairs, file cabinets, display racks, shelving, and so forth. The cost of furniture and fixtures includes the basic cost of each asset (less any discounts) plus all other costs to ready the asset for its intended use. For example, for a desk, this may include the cost to ship the desk to the business and the cost paid to a laborer to assemble the desk.

Lump-Sum Purchase (1 of 4)

A company may pay a single price for several assets as a group; this is called a lump-sum purchase.

Also called a basket purchase

The company must identify the cost of each asset purchased.

The total cost paid is divided among the assets according to their relative fair market values. This is called the relative-market-value method.

A company may pay a single price for several assets as a group; this is called a lump-sum purchase (or a basket purchase). For example, Smart Touch Learning may pay a single price for land and a building. For accounting purposes, the company must identify the cost of each asset purchased. The total cost paid (100%) is divided among the assets according to their relative market values. The relative-market-value-method is a method of allocating the total cost (100%) of multiple assets purchased at one time. Total cost is divided among the assets according to their relative market values.

Lump-Sum Purchase (2 of 4)

Suppose Smart Touch Learning paid $100,000 on August 1, 2019, for the land and building. An appraisal indicates the land’s market value is $30,000, and the building’s market value is $90,000.

Suppose Smart Touch Learning paid a combined purchase price of $100,000 on August 1, 2019, for the land and building. An appraisal indicates that the land’s market value is $30,000, and the building’s market value is $90,000. How will the accountant allocate the $100,000 paid for both assets?

First, calculate the ratio of each asset’s market value to the total market value for both assets. The total appraised value is $120,000. The land represents 25% ($30,000 / $120,000) of the purchase, and the building represents 75% ($90,000 / $120,000) of the purchase.

For Smart Touch Learning, the land is assigned a cost of $25,000, and the building is assigned a cost of $75,000, calculated as follows:

Lump-Sum Purchase (3 of 4)

In our example, 25% of the cost should be allocated to the land (25% × $100,000 = $25,000), and 75% of the cost should be assigned to the building (75% × $100,000 = $75,000).

Lump-Sum Purchase (4 of 4)

Assume that Smart Touch Learning purchased the assets by signing a note payable. The entry to record the purchase of the land and building is:

The journal entry will include a debit of $25,000 to Land, a debit of $75,000 to Building, and a credit of $100,000 to Notes Payable.

Capital and Revenue Expenditures (1 of 4)

Accountants divide spending on plant assets after the acquisition into two categories:

Capital expenditures increase the asset’s capacity or efficiency or extends the asset’s useful life.

Includes extraordinary repairs, which are repairs that extend the asset’s useful life

Revenue expenditures are expenses incurred to maintain the asset in working order.

Accountants divide spending on plant assets after the acquisition into two categories: capital expenditures and revenue expenditures.

A capital expenditure is an expenditure that increases the capacity or efficiency of a plant asset or extends its useful life. A capital expenditure is also called a balance sheet expenditure because the cost of the expenditure is reported on the balance sheet as an asset. A capital expenditure is debited to an asset account because it increases the asset’s capacity or efficiency or extends the asset’s useful life. Examples of capital expenditures include the purchase price plus all the other costs to bring an asset to its intended use. An extraordinary repair is a capital expenditure because it extends the asset’s capacity or useful life.

Expenses incurred to maintain an asset in working order, such as repair or maintenance expenses, are not debited to an asset account. Examples include the cost of maintaining equipment, such as repairing the air conditioner on a truck, changing the oil filter, and replacing its tires. These ordinary repairs are called revenue expenditures and are debited to Repairs and Maintenance Expense. Revenue expenditures are often called income statement expenditures, do not increase the capacity or efficiency of an asset or extend its useful life, and are reported on the income statement as an expense in the period incurred.

Capital and Revenue Expenditures (2 of 4)

Spending $3,000 to rebuild the engine on a five-year-old truck is an extraordinary repair because it extends the asset’s life past the normal expected life.

Spending $3,000 to rebuild the engine on a five-year-old truck is an extraordinary repair because it extends the asset’s life past the normal expected life. The $3,000 is capitalized by debiting Truck and crediting Cash.

Capital and Revenue Expenditures (3 of 4)

Smart Touch Learning paid $500 cash to replace tires on the truck. This expenditure does not extend the useful life of the truck or increase its efficiency.

Smart Touch Learning paid $500 cash to replace tires on the truck. This expenditure does not extend the useful life of the truck or increase its efficiency. The $500 is expensed by debiting Repairs and Maintenance Expense and crediting Cash.

Capital and Revenue Expenditures (4 of 4)

Exhibit 10-3 Delivery Truck Expenditures—Capital Expenditure and Revenue Expenditure

Capital Expenditure: Debit an Asset Account	Revenue Expenditure: Debit an Expense Account
Capital Expenditures:	Revenue Expenditures:
Major engine or transmission overhaul	Repair of transmission or engine
Modification for new use	Oil change, lubrication, and so on
Addition to storage capacity	Replacement of tires or windshield
Anything that increases the life of the asset	Paint job

Exhibit 10-3 shows some capital expenditures and revenue expenditures for a delivery truck.

Treating a capital expenditure as an expense, or vice versa, creates an accounting error. Suppose a business replaces the engine in a truck. This would be an extraordinary repair because it increases the truck’s life. If the company expenses the cost by debiting Repairs and Maintenance Expense rather than capitalizing it (debiting the asset), the company would be making an accounting error. This error has the following effects: overstates Repairs and Maintenance Expense, understates net income, understates owner’s equity, and understates the Truck account (asset) on the balance sheet. Incorrectly capitalizing an expense creates the opposite error.

Learning Objective 10.2

Account for depreciation using the straight-line, units-of-production, and double-declining-balance methods

What Is Depreciation, and How Is It Computed?

Depreciation matches the expense against the revenue generated from using an asset.

All assets, except land, wear out as they are used.

Some assets may become obsolete before they wear out. An asset is obsolete when a newer asset can perform the job more efficiently.

Depreciation is the allocation of a plant asset’s cost to expense over its useful life. Depreciation matches the expense against the revenue generated from using the asset to measure net income. All assets, except land, wear out as they are used. In addition, physical factors, like age and weather, can cause depreciation of assets. Some assets, such as computers and software, may become obsolete before they wear out. An asset is considered obsolete when a newer asset can perform the job more efficiently than the old.

Depreciation is not a process of valuation. Businesses do not record depreciation based on changes in the asset’s market value. Depreciation does not mean that the business sets aside cash to replace an asset when it is used up. Depreciation has nothing to do with cash.

Factors in Computing Depreciation

Depreciation of a plant asset is based on three main factors:

Capitalized cost

Estimated useful life, which is how long the company expects it will use the asset.

Estimated residual value, which is the expected value of a depreciable asset at the end of its useful life.

Cost minus estimated residual value is called depreciable cost.

To compute depreciation for a period, we need to consider three primary factors: the capitalized cost of the asset, the estimated useful life, and the estimated residual value of the asset at the end of its estimated useful life.

The useful life is the length of the service period expected from an asset. It may be expressed in time, such as months or years, or usage, such as units produced, hours used (for machinery), or miles driven (for a truck). The residual value is the expected value of a depreciable asset at the end of its useful life.

When a company decides to dispose of an asset, the company sells or scraps it. The residual value is the amount the company expects to receive when it disposes of the asset. Residual value can sometimes be zero if a company does not expect to receive anything when disposing of an asset. If a company plans on trading in an asset for a new asset, the residual value will be the expected trade-in value. Estimated residual value is not depreciated because the company expects to receive this amount at the end. The depreciable cost is the cost of a plant asset minus its estimated residual value.

Depreciation Methods

most commonly used depreciation methods:

Straight-line method

Units-of-production method

Double-declining-balance method

Exhibit 10-4 Data for Truck

The three common most depreciation methods are straight-line depreciation, units-of-production depreciation, and double-declining-balance depreciation.

As we work through each method, we will use the following information. Smart Touch Learning purchases a truck on January 1, 2019. The truck has a cost of $41,000 and an estimated residual value of $1,000. The estimated useful life of the truck is five years or 100,000 miles.

Straight-Line Method (1 of 3)

The straight-line method allocates an equal amount of depreciation to each year and is computed as follows:

The entry to record the year’s depreciation expense:

Under the straight-line method, residual value is deducted from the depreciable cost and then divided by the estimated useful life of the asset. The straight-line method is a depreciation method that allocates an equal amount of depreciation each period.

Straight-line depreciation = (Cost – Residual value) / Useful life

In the Smart Touch Learning example, the depreciable cost is $40,000. Divided by an estimated useful life of five years, the annual depreciation for the truck is $8,000 per year.

Straight-Line Method (2 of 3)

Depreciation expense is reported on the income statement.

The book value of the asset, cost minus accumulated depreciation, is reflected on the balance sheet.

Depreciation expense is reported on the income statement. Accumulated Depreciation is a contra asset account that is reported on the balance sheet. The book value is a depreciable asset’s cost minus accumulated depreciation. The book value is reported on the balance sheet.

Straight-Line Method (3 of 3)

Exhibit 10-5 Straight-Line Depreciation Schedule

A straight-line depreciation schedule for the truck is shown in Exhibit 10-5. The final column on the right shows the asset’s book value, which is cost less accumulated depreciation. Notice that the depreciation expense amount is the same every year, and the accumulated depreciation is the sum of all depreciation expense recorded to date for the depreciable asset. As an asset is used, accumulated depreciation increases and book value decreases. At the end of its useful life, the asset is said to be fully depreciated. An asset’s final book value is its residual value.

Units-of-Production Method (1 of 3)

31 May Read Article? https://www.investors.com/news/target-stock-spikes-to-11-month-high-on-earnings-beat/ Provide a measure of information about the topic’s significance to th

Related Tags

Who We Are

Some Categories

More Links

We Accept