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CHAPTER 10
Plant Assets, Natural Resources,
and Intangible Assets
ASSIGNMENT CLASSIFICATION TABLE
Learning Objectives
Questions
Brief
Exercises
Do It!
Exercises
A
Problems
1. Explain the accounting for
plant asset expenditures.
1, 2, 3, 9, 24
1, 2, 3
1
1, 2, 3
1A
2. Apply depreciation
methods to plant assets.
4, 5, 6, 7, 8,
21, 22, 23
4, 5, 6 ,7, 8
2a, 2b
4, 5, 6, 7, 8
2A, 3A, 4A,
5A
3. Explain how to account for
the disposal of plant assets.
10, 11
9, 10
3
9, 10
5A, 6A
ASSIGNMENT CHARACTERISTICS TABLE
Problem
Number
Description
Difficulty
Level
Time
Allotted (min.)
1A
Determine acquisition costs of land and building.
Simple
20–30
2A
Compute depreciation under different methods.
Simple
30–40
3A
Compute depreciation under different methods.
Moderate
30–40
4A
Calculate revisions to depreciation expense.
Moderate
20–30
5A
Journalize a series of equipment transactions related to
purchase, sale, retirement, and depreciation.
Moderate
40–50
6A
Record disposals.
Simple
30–40
WEYGANDT ACCOUNTING PRINCIPLES 12E
CHAPTER 10
PLANT ASSETS, NATURAL RESOURCES,
AND INTANGIBLE ASSETS
Number
LO
BT
Difficulty
Time (min.)
BE1
1
AP
Simple
2–4
BE2
1
AP
Simple
1–2
BE3
1
AP
Simple
2–4
BE4
2
AP
Simple
2–4
BE9
3
AP
Simple
4–6
BE10
3
AP
Simple
4–6
BE11
4
AP
Simple
4–6
BE12
4
AP
Simple
2–4
BE13
5
AP
Simple
4–6
BE14
5
AP
Simple
2–4
*BE15
6
AP
Simple
4–6
*BE16
6
AP
Simple
4–6
DI1
1
C
Simple
4–6
DI2a
2
AP
Simple
2–4
DI2b
2
AP
Simple
6–8
EX3
1
AP
Simple
4–6
EX4
2
C
Simple
4–6
EX5
2
AP
Simple
6–8
EX6
2
AP
Simple
8–10
EX7
2
AP
Simple
10–12
EX8
2
AN
Moderate
8–10
PLANT ASSETS, NATURAL RESOURCES, AND INTANGIBLE
ASSETS (Continued)
Number
LO
BT
Difficulty
Time (min.)
EX9
3
AP
Moderate
8–10
EX10
3
AP
Moderate
10–12
*EX16
6
AP
Moderate
8–10
P1A
1
C
Simple
20–30
P2A
2
AP
Simple
30–40
P3A
2
AN
Moderate
30–40
P4A
2
AP
Moderate
20–30
P5A
2, 3, 5
AP
Moderate
40–50
P6A
3
AP
Simple
30–40
P7A
4, 5
AP
Moderate
30–40
P8A
4
AP
Moderate
30–40
P9A
5
AN
Moderate
5–10
BLOOM’ S TAXONOMY TABLE
Correlation Chart between Bloom’s Taxonomy, Study Objectives and End-of-Chapter Exercises and Problems
Study Objective
Knowledge
Comprehension
Application
Analysis
Synthesis
Evaluation
1. Explain the accounting for plant
asset expenditures.
Q10-1
Q10-2
Q10-3
Q10-9
Q10-24
DI10-1
E10-1
P10-1A
BE10-1
BE10-2
BE10-3
E10-2
E10-3
3. Explain how to account for the
disposal of plant assets.
Q10-10
DI10-3
Q10-11
BE10-9
BE10-10
E10-9
E10-10
P10-5A
P10-6A
4. Describe how to account for
natural resources and intangible
assets.
Q10-12
Q10-18
DI10-4
Q10-13 Q10-17
Q10-14 Q10-19
Q10-15
Q10-16
BE10-11 P10-7A
BE10-12 P10-8A
E10-11
E10-12
E10-13
5. Discuss how plant assets, natural
resources, and intangible assets
are reported and analyzed.
Q10-20
BE10-13
BE10-14
E10-14
P10-5A
P10-7A
P10-9A
ANSWERS TO QUESTIONS
1. For plant assets, the historical cost principle means that cost consists of all expenditures necessary to
acquire the asset and make it ready for its intended use.
2. Examples of land improvements include driveways, parking lots, fences, and underground sprinklers.
3. (a) When only the land is to be used, all demolition and removal costs of the building less any
proceeds from salvaged materials are necessary expenditures to make the land ready for its
intended use.
(b) When both the land and building are to be used, necessary costs of the building include
remodeling expenditures and the cost of replacing or repairing the roofs, floors, wiring, and
plumbing.
6. (a) Useful life is expressed in years under the straight-line method and in units of activity under
the units-of-activity method.
(b) The pattern of periodic depreciation expense over useful life is constant under the straight-line
method and variable under the units-of-activity method.
7. The effects of the three methods on annual depreciation expense are: Straight-line—constant
amount; units of activity—varying amount; declining-balance—decreasing amounts.
8. A revision of depreciation is made in current and future years but not retroactively. The rationale
is that continual restatement of prior periods would adversely affect confidence in the financial
statements.
9. Revenue expenditures are ordinary repairs made to maintain the operating efficiency and productive
life of the asset. Capital expenditures are additions and improvements made to increase operating
efficiency, productive capacity, or useful life of the asset. Revenue expenditures are recognized
as expenses when incurred; capital expenditures are generally debited to the plant asset affected.
Questions Chapter 10 (Continued)
12. Natural resources consist of underground deposits of oil, gas, and minerals, and standing timber.
These long-lived productive assets have two distinguishing characteristics: they are physically
extracted in operations, and they are replaceable only by an act of nature.
13. Depletion is the allocation of the cost of natural resources to expense in a rational and systematic
manner over the resource’s useful life. It is computed by multiplying the depletion cost per unit by
the number of units extracted and sold.
14. The terms depreciation, depletion, and amortization are all concerned with allocating the cost of
an asset to expense over the periods benefited. Depreciation refers to allocating the cost of a
plant asset to expense, depletion to recognizing the cost of a natural resource as expense, and
amortization to allocating the cost of an intangible asset to expense.
18. Goodwill is recorded only when there is a transaction that involves the purchase of an entire
business. Goodwill is the excess of cost over the fair value of the net assets (assets less
liabilities) acquired. The recognition of goodwill without an exchange transaction would lead to
subjective valuations which would reduce the reliability of financial statements.
19. Research and development costs present several accounting problems. It is sometimes difficult
to assign the costs to specific projects, and there are uncertainties in identifying the extent and
timing of future benefits. As a result, the FASB requires that research and development costs be
recorded as an expense when incurred.
20. McDonald’s asset turnover ratio is computed as follows:
Questions Chapter 10 (Continued)
22. Yes, the tax regulations of the IRS allow a company to use a different depreciation method on the
tax return than is used in preparing financial statements. Gomez Corporation uses an accelerated
depreciation method for tax purposes to minimize its income taxes and thereby the cash outflow
for taxes.
25. When assets are exchanged, the gain or loss on disposal is computed as the difference between
the book value and the fair value of the asset given up at the time of exchange.
26. Yes, Unruh should recognize a gain equal to the difference between the fair value of the old
machine and its book value. If the fair value of the old machine is less than its book value, Unruh
should recognize a loss equal to the difference between the two amounts.
SOLUTIONS TO BRIEF EXERCISES
BRIEF EXERCISE 10-1
All of the expenditures should be included in the cost of the land. Therefore,
the cost of the land is $61,000, or ($50,000 + $3,000 + $2,500 + $2,000 + $3,500).
BRIEF EXERCISE 10-2
The cost of the truck is $32,500 (cash price $30,000 + sales tax $2,100 + painting
and lettering $400). The expenditures for insurance and motor vehicle license
should not be added to the cost of the truck.
BRIEF EXERCISE 10-3
BRIEF EXERCISE 10-4
Depreciable cost of $32,000, or ($38,000 – $6,000). With a four-year useful life,
annual depreciation is $8,000, or ($32,000 ÷ 4). Under the straight-line method,
depreciation is the same each year. Thus, depreciation is $8,000 for both the
first and second years.
BRIEF EXERCISE 10-5
BRIEF EXERCISE 10-6
The declining balance rate is 50%, or (25% X 2) and this rate is applied to book
value at the beginning of the year. The computations are:
BRIEF EXERCISE 10-7
The depreciation cost per unit is 26 cents per mile computed as follows:
BRIEF EXERCISE 10-8
Book value, 1/1/17 .......................................................................... $23,000
Less: Salvage value ...................................................................... 2,000
Depreciable cost ............................................................................. $21,000
Remaining useful life ..................................................................... 4 years
Revised annual depreciation ($21,000 ÷ 4) ................................... $ 5,250
BRIEF EXERCISE 10-9
BRIEF EXERCISE 10-9 (Continued)
Cost of equipment $41,000
Less accumulated depreciation 37,000
BRIEF EXERCISE 10-10
(a) Depreciation Expense ............................................... 5,250
Accumulated Depreciation—
Equipment ...................................................... 5,250
(b) Cash ............................................................................ 18,000
Accumulated Depreciation—Equipment .................. 47,250
Loss on Disposal of Plant Assets ............................ 6,750
Equipment .......................................................... 72,000
BRIEF EXERCISE 10-11
(a) Depletion cost per unit = $7,000,000 ÷ 35,000,000 = $.20 depletion cost
per ton
$.20 X 5,000,000 = $1,000,000
BRIEF EXERCISE 10-12
(a) Amortization Expense ($140,000 ÷ 10) ...................... 14,000
Patents ................................................................. 14,000
BRIEF EXERCISE 10-13
DENT COMPANY
Balance Sheet (partial)
December 31, 2017
Property, plant, and equipment
Coal mine .......................................... $ 500,000
Less: Accumulated depletion ......... 108,000 $392,000
Buildings ........................................... 1,100,000
BRIEF EXERCISE 10-14
*BRIEF EXERCISE 10-15
Equipment (new) .............................................................. 29,000
Accumulated Depreciation—Equipment ......................... 30,000
*BRIEF EXERCISE 10-15 (Continued)
Fair value of old delivery
equipment $24,000
Cash paid 5,000
Cost of delivery equipment $29,000
*BRIEF EXERCISE 10-16
Equipment (new) ............................................................... 38,000
Accumulated Depreciation—Equipment ......................... 30,000
Gain on Disposal of Plant Assets ............................. 2,000
Equipment (old) ......................................................... 61,000
Cash ............................................................................ 5,000
Fair value of old delivery
equipment $33,000
Gain on disposal $ 2,000
SOLUTIONS FOR DO IT! REVIEW EXERCISES
DO IT! 10-1
The following four items are expenditures necessary to acquire the truck
and get it ready for use:
Negotiated purchase price ............................................... $24,000
Installation of special shelving ........................................ 1,100
Painting and lettering ....................................................... 900
DO IT! 10-2a
Depreciation expense
=
Cost – Salvage
=
$15,000 – $3,000
=
$1,500
Useful life
8 years
The entry to record the first year’s depreciation would be:
Depreciation Expense ...................................................... 1,500
DO IT! 10-2b
Original depreciation expense = ($70,000 – $2,000) ÷ 8 years = $8,500
Book value, $70,000 – $25,500 ............................................. $44,500
Less: Salvage value ............................................................ 6,000
DO IT! 10-3
(a) Sale of truck for cash at a gain:
Cash ............................................................................ 26,000
(b) Sale of truck for cash at a loss:
DO IT! 10-4
1. Intangible assets
2. Amortization
DO IT! 10-5
Asset turnover =
$400,000
($300,000 + $340,000) 2
SOLUTIONS TO EXERCISES
EXERCISE 10-1
(a) Under the historical cost principle, the acquisition cost for a plant
asset includes all expenditures necessary to acquire the asset and
(b) 1. Land
2. Equipment
EXERCISE 10-2
1. Equipment
2. Equipment
EXERCISE 10-3
(a) Cost of land
Cash paid .......................................................................... $75,000
Net cost of removing warehouse
(b) The architect’s fee ($7,800) should be debited to the Buildings account.
The cost of the driveways and parking lot ($14,000) should be debited
to Land Improvements.
EXERCISE 10-4
1. False. Depreciation is a process of cost allocation, not asset valuation.
2. True.
3. False. The book value of a plant asset may be quite different from its
fair value.
4. False. Depreciation applies to three classes of plant assets: land improve-
EXERCISE 10-5
(a) Depreciation cost per unit is $1.40 per mile
[($148,000 – $8,000) ÷ 100,000].
(b)
Computation
End of Year
Year
Units of
Activity
X
Depreciation
Cost /Unit
=
Annual
Depreciation
Expense
Accumulated
Depreciation
Book
Value
2017
26,000
$1.40
$36,400
$ 36,400
$111,600
EXERCISE 10-6
(a) Straight-line method:
$150,000 – $12,000
5
= $27,600 per year.
(b) Units-of-activity method:
$150,000 – $12,000
10,000
= $13.80 per hour.
(c) Declining-balance method:
EXERCISE 10-7
(a) (1) 2017: ($34,000 – $2,000)/8 = $4,000
2018: ($34,000 – $2,000)/8 = $4,000
(2) ($34,000 – $2,000)/100,000 = $0.32 per mile
2017: 15,000 X $0.32 = $4,800
(b) (1) Depreciation Expense ............................................. 4,000
Accumulated Depreciation—Equipment .............. 4,000
EXERCISE 10-8
(a)
Type of Asset
Building
Warehouse
Book value, 1/1/17
Less: Salvage value
$686,000
26,000
$81,000
6,000
(b) Dec. 31 Depreciation Expense .............................. 15,000
EXERCISE 10-9
Jan. 1 Accumulated Depreciation—Equipment ....... 62,000
Equipment ............................................... 62,000
30 Cash ................................................................. 14,000
Accumulated Depreciation—Equipment
($45,000 X 3/5 = $27,000; $27,000 + $4,500) .... 31,500
Dec. 31 Depreciation Expense .................................... 5,000
Accumulated Depreciation—Equipment
EXERCISE 10-10
(a) Cash ......................................................................... 31,000
Accumulated Depreciation—Equipment
[($65,000 – $5,000) X 3/5] .................................... 36,000
Equipment....................................................... 65,000
Gain on Disposal of Plant Assets ................. 2,000
