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Test 3: Chapter 10
Terms in this set (29)
Major characteristics of PP&E
"Used in operations" and not got resale
Long term in nature and usually depreciated
Possess physical substance
How is PP&E valued?
What kind of costs do closing costs (attorney's fees, recording fees) fall under?
What kind of costs do demolition costs fall under?
Cost of land:
Includes all costs to acquire land, and ready it for use
Cost of Buildings:
Includes all costs related to acquisition or construction
Cost of equipment:
Include all costs incurred in acquiring the equipment and preparing it for use
Does insurance on equipment while equipment is in transit go under the cost of equipment account?
How should companies record property, plant, and equipment?
At fair value of what they give up or
at the fair value of the asset received,
whichever is more evident
On what basis may a company allocate the cost of assets acquired for a lump sum price?
Their relative fair value
Where are items such as parking lots, driveways, and fences recorded?
Improvements with limited lives
How are proceeds from getting land ready for use treated?
reductions in the price of land
What are the two situations to look for in exchanges of nonmonrtary assets?
Future cash flows change as a result of the transaction
What does no commercial substance mean?
Future cash flows do not change
What to do when an exchange has commercial substance?
Recognize gains and losses immediately
What to do when an exchange lacks commercial substance - no cash recceived
Defer (do not recognize) gains; recognize losses immediately
What to do when an exchange lacks commercial substance - cash received <25% of transaction
recognize partial gain; recognize losses immediately
What to do when an exchange lacks commercial substance - cash paid < 25% of transaction
Defer gain; recognize losses immediately
What to do when exchange lacks commercial substance - cash received or cash paid >/= 25% of transaction
recognize gains and losses immediatley
Total gain (or loss) formula
Fair value of old asset less book value (cost-depreciation) of old asset
Accounting for contributions
Companies should use: 1) the fair value of the asset to establish its value on the books and 2) should recognize contributions received as revenues in the period received
3 conditions that allow for an expenditure to be capitalized
Useful life of the asset must be increased
quantity of units produced from asset must be increased
quality of units produced must be enhanced
Improvements and replacements: Carrying value known
Remove cost of and accumulated depreciation on old asset, recognizing any gain or loss. Capitalize cost of improvement/replacement
Improvements and replacements: Carrying value unknown
If the asset's life is extended, debit accumulated depreciation for cost of improvement/replacement
2) If the quantity or quality of the asset's productivity is increased, capitalize cost of improvement/replacement to asset account
If an asset can still be used even though its fully depreciated, do you keep it on the books?
yes, at historical cost-depreciation
What's an involuntary conversion and what do you do when it happens?
When an asset is terminated through some type of involuntary conversion such as fire, flood, theft, etc.
Companies report the difference between the amount recovered (ex insurance recovery) and the assets book value as a gain or loss
Rearrangement and reinstallation: what to do if the originial installation cost is known
Account for cost of rearrangement/reinstallation as a replacement (carrying value known)
Rearrangement and reinstallation: What to do if original cost is unknown?
if material: capitalize as an asset
If not material: expense the cost when incurred
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