Identify and record the major types of property, plant, and equipment.

hapter 7

Long-Term Assets

 

 

PART 1 – ACQUISITIONS

LO 1  Identify and record the major types of property, plant, and equipment.

 

1. Property, Plant, and Equipment (PPE)
   1. __________record at)

i.      Cost

ii.      All expenditures necessary to get the asset ready to use

1. 1. How long will asset benefit company?

i.      WorldCom-

Practice:  If a company initially records an expense incorrectly as an asset, explain how this mistake affects the income statement and the balance sheet.

This mistake will overstate _________ on the income statement and overstate ________ on the balance sheet. If a company initially records an expense incorrectly as an asset, expenses are understated or too small.

1. Land
   1. _________
   2. _____________

 

Practice:  Soccer Wholesale purchased land and a warehouse for $800,000. In addition to the purchase price, Soccer Wholesale incurred commissions of $48,000; property taxes of $10,000, title insurance, $3,000; and miscellaneous closing costs, $8,000. The warehouse is immediately demolished at a cost of $80,000. The $10,000 in property taxes includes $7,000 on behalf of the seller and $3,000 due for the current year after the purchase date.  Determine the amount Soccer Wholesale should record as the cost of the land.

Land Improvements

1. 1. Parking lot
   2. Sidewalks
   3. Driveways
   4. Landscaping
   5. Lighting
   6. Fences
   7. Underground sprinklers
   8. ____________ limited lives
2. Buildings
   1. Purchasing building

i.      Cost plus expenses to get it ___________

1. 1. New building construction

i.      Unique – ___________on construction loan is _________

 

1. Equipment
   1. Cost plus expenses to get it ____________

F. Natural resources

a.       _depleted_ or used up.

i.      Oil & gas

ii.      Timber

 

Practice:  Holiday Laboratories purchased a high speed industrial centrifuge at a cost of $420,000. Shipping costs totaled $15,000. Foundation work to house the centrifuge cost $8,000. An additional water line had to be run to the equipment at a cost of $3,000. Labor and testing costs totaled $6,000. Materials used up in testing cost $3,000. What is the total cost of the equipment? How much of this amount should be expensed immediately?

E7-4 Practice: Red Rock Bakery purchases land, building, and equipment for a single purchase price of $400,000.  Red Rock paid cash.  However, the estimated fair values of the land, building, and equipment are $150,000, $300,000, and $50,000, respectively, for a total estimated fair value of $500,000.  Prepare the journal entry to record the purchase.

 

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