Chapter 10 – Plant Assets, Natural Resources, and Intangibles
Chapter 10
Plant Assets, Natural Resources,
and Intangibles
QUESTIONS
1. A plant asset is tangible; it is used in the production or sale of other assets or services;
2. The cost of a plant asset includes all normal and reasonable expenditures necessary to
3. Land is an asset with an unlimited life and, therefore, is not subject to depreciation. Land
4. Often the lump-sum or basket purchase includes assets with different lives that must be
5. The Accumulated Depreciation—Machinery account is a contra asset account with a
credit balance that cannot be used to buy anything. The balance of the Accumulated
6. The Modified Accelerated Cost Recovery System is not generally acceptable for financial
7. The materiality constraint justifies charging low-cost plant asset purchases to expense
8. Ordinary repairs are made to keep a plant asset in normal, good operating condition, and
9. A company might sell or exchange an asset when it reaches the end of its useful life, or if
10. The process of allocating the cost of natural resources to expense over the periods when
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Chapter 10 – Plant Assets, Natural Resources, and Intangibles
11. No, depletion expense should be calculated on the units that are extracted (similar to the
12. An intangible asset: (1) has no physical existence; (2) derives value from the unique legal
13. Intangible assets are generally recorded at their cost and amortized over their predicted
useful life. (However, some costs are not included, such as the research and
14. A company has goodwill when its value exceeds the value of its individual assets and
15. No; this type of goodwill would not be amortized. Instead, the FASB (SFAS 142) requires
16. Total asset turnover is calculated by dividing net sales by average total assets.
17. The word “net” means that Apple is reporting its property and equipment after deducting
18. Google lists “Property and equipment, net” on the balance sheet. The net book value of
19. Samsung titles its plant assets “Property, plant and equipment.” The book value of its
20. Samsung reports the following long-term assets that are discussed in this chapter:
21. (a) The main difference between plant assets and current assets is that current assets
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Chapter 10 – Plant Assets, Natural Resources, and Intangibles
QUICK STUDIES
Quick Study 10-1 (10 minutes)
Note: The $1,850 repair charge is an expense because it is not a normal and reasonable
expenditure necessary to get the asset in place and ready for its intended use.
Quick Study 10-2 (10 minutes)
Expensed or Capitalized Asset Category (if any) .
1. Expensed —
2. Capitalized Equipment
Quick Study 10-3 (10 minutes)
Straight-line:
Quick Study 10-4 (10 minutes)
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Chapter 10 – Plant Assets, Natural Resources, and Intangibles
Quick Study 10-5 (10 minutes)
$65,800 Cost
– 15,950 Accumulated depreciation (first year)
Quick Study 10-6 (10 minutes)
Note: Double-declining-balance rate = (100% / 8 years) x 2 = 25%
First year:
$830,000 x 25% = $207,500
* Total accumulated depreciation of $479,844 ($207,500 + $155,625 + $116,719)
does not exceed the depreciable cost of $755,000 ($830,000 – $75,000).
Quick Study 10-7 (10 minutes)
Impairment Loss…………………………………………………… 1,250
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Chapter 10 – Plant Assets, Natural Resources, and Intangibles
Quick Study 10-8 (10 minutes)
1. (a) Capital expenditure
(b) Revenue expenditure
(c) Revenue expenditure
(d) Capital expenditure
To record addition of a new wing.
*Although NOT required, entries are shown for transactions b and c for completeness
Quick Study 10-9 (15 minutes)
Book value of old equipment = $76,800 – $40,800 = $36,000
1. Cash…………………………………………………………………….
……………………………………………………………………… 47,000
2. Cash…………………………………………………………………….
……………………………………………………………………… 36,000
3. Cash…………………………………………………………………….
……………………………………………………………………… 31,000
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Chapter 10 – Plant Assets, Natural Resources, and Intangibles
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Chapter 10 – Plant Assets, Natural Resources, and Intangibles
Quick Study 10-10 (10 minutes)
1. Ore Mine………………………………………………………………1,800,000
Cash……………………………………………………………… 1,800,000
To record cost of ore mine.
2.
Quick Study 10-11 (10 minutes)
a. Oil well NR
b. Trademark IA
c. Leasehold IA
Quick Study 10-12 (10 minutes)
1.
To record leasehold improvements.
2.
To record amortization of leasehold over
the remaining life of the lease.*
* Amortization = $105,000 / 8-year-lease-term = $13,125 per year.
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Chapter 10 – Plant Assets, Natural Resources, and Intangibles
Quick Study 10-13 (10 minutes)
($ thousands)
Interpretation: The company’s turnover of 0.80 times is markedly lower than
its competitors’ turnover of 2.0. This company must perform better if it is to
be successful in the long run.
1. Machinery (new)………………………………………………. 52,000
2. Machinery (new)*……………………………………………… 46,000
Accumulated Depreciation–Machinery (old)………. 18,400
Quick Study 10-15 (10 minutes)
a. Accounting for plant assets involving cost determination,
depreciation, additional expenditures, and disposals of plant assets
b. U.S. GAAP prohibits companies to record increases in the value of
plant assets subsequent to acquisition. However, IFRS permits
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Chapter 10 – Plant Assets, Natural Resources, and Intangibles
EXERCISES
Exercise 10-1 (15 minutes)
Invoice price of machine……………………………………………….$ 12,500
Less discount (.02 x $12,500)………………………………………… (250)
Net purchase price………………………………………………………..12,250
Note: The $180 repair charge is an expense because it is not a normal and reasonable
expenditure necessary to get the asset in place and ready for its intended use.
Exercise 10-2 (15 minutes)
Cost of land
Purchase price for land…………………………………………………$ 280,000
Cost of new building and land improvements
Cost of new building……………………………………………………..$1,452,200
Journal entry
Land…………………………………………………………………… 470,500
To record costs of plant assets.
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Chapter 10 – Plant Assets, Natural Resources, and Intangibles
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