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;
and it has a useful life longer than one accounting period.
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
because such amounts are unlikely to impact the decisions of financial statement users.
10. The process of allocating the cost of natural resources to expense over the periods
when they are consumed is called depletion. The method to compute depletion is similar
to units-of-production depreciation.
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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
units-of-production basis) and sold.
12. An intangible asset: (1) has no physical existence; (2) derives value from the unique
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
that goodwill be annually tested for impairment. If the book value of goodwill does not
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
accumulated depreciation to date.
21. (a) The main difference between plant assets and current assets is that current assets
are consumed or converted into cash within a short period of time, while plant assets
have a useful life of more than one accounting period.
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Chapter 10 – Plant Assets, Natural Resources, and Intangibles
QUICK STUDIES
Quick Study 10-1 (10 minutes)
Quick Study 10-2 (10 minutes)
Expensed or Capitalized Asset Category (if any) .
1. Expensed —
2. Capitalized Equipment
3. Capitalized Equipment (reduce the cost of)
Quick Study 10-3 (10 minutes)
Straight-line:
($65,800 – $2,000) / 4 years = $15,950 depreciation per year
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)
49,850 Book value at point of revision
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
Quick Study 10-7 (10 minutes)
Impairment Loss……………………………………….…..….….... 1,250
Quick Study 10-8 (10 minutes)
1. (a) Capital expenditure
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Chapter 10 – Plant Assets, Natural Resources, and Intangibles
2. (a) Equipment……………………………………..….…..…..…... 40,000
Cash……………………………………………………….… 40,000
To record an extraordinary repair.
(b)* Maintenance Expense…………………..…..…..….…..… 200
Cash……………………………………………………….… 200
To record ordinary maintenance of a truck.
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
Accumulated depreciation…………..…..….…..…..….….... 40,800
*(Loss = $31,000 – $36,000)
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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.
Depletion per unit = = $1.60 per ton
Quick Study 10-11 (10 minutes)
a. Oil well NR
b. Trademark IA
Quick Study 10-12 (10 minutes)
1.
Jan. 4 Leasehold Improvements………………..….…..…..….…..….105,000
2.
Dec. 31 Amortization Expense–Leasehold Improvements………….13,125
Accumulated Amortization—Leasehold
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$1,800,000 – $200,000
1,000,000 tons
Chapter 10 – Plant Assets, Natural Resources, and Intangibles
Quick Study 10-13 (10 minutes)
Total asset turnover = = 0.80 times
($ thousands)
Quick Study 10-14A (10 minutes)
Book value of old machine = $42,400 – $18,400 = $24,000
1. Machinery (new)……………………..….…..…..….…..….… 52,000
Accumulated Depreciation–Machinery (old).......... 18,400
Loss on Exchange of Assets*……….…..….…..…..….. 2,000
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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$14,800
($19,100 + $17,900) / 2
Chapter 10 – Plant Assets, Natural Resources, and Intangibles
EXERCISES
Exercise 10-1 (15 minutes)
Invoice price of machine…………………………………..….…..…....$ 12,500
Less discount (.02 x $12,500)………………..….…..….…..…..…... (250)
Total cost to be recorded………………………….….…..….…..…....$ 14,020
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
Purchase price for old building………………………..….…..…..… 110,000
Cost of new building and land improvements
Cost of new building…………………………………………………….…$1,452,200
Journal entry
Land……………………………………………………………………… 470,500
Land Improvements…………………………………………..….. 87,800
To record costs of plant assets.
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Education.
Chapter 10 – Plant Assets, Natural Resources, and Intangibles
Exercise 10-3 (20 minutes)
Allocation of total cost
Appraised
Value
Percent
of Total
Applying %
to Cost
Apportioned
Cost
Land……………….…..…....$157,040 40% $395,380 x .40 $158,152
Land improvements..….. 58,890 15 $395,380 x .15 59,307
Journal entry
Land……………………………………………..…..….…..….... 158,152
Land Improvements……………………………………….... 59,307
Exercise 10-4 (10 minutes)
Straight-line
($43,500 – $5,000) / 10 years = $3,850
Exercise 10-5 (10 minutes)
Units-of-production
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