ACCT-1001EL Study Guide - Final Guide: Intangible Asset, Impaired Asset, Book Value

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Chapter 8 - Long-Term Assets

What is a Long-Term Asset?

Also known as Capital Assets…

1. Property, Plant and Equipment (TA)

2. Intangible Assets

3. Goodwill

Tangible Assets: Physical Presence, such as land, buildings, machinery, furniture,

computer equipment etc. These are purchased by companies to use them to generate

revenues over multiple future periods. These assets are not purchased for resale.

Intangible Assets: Long term assets without a presence, including things such as

trademarks, patents, copyrights, licenses, franchise rights, and customer lists. These

assets must be separately identiﬁable from other assets, which means they can be

resold, licensed or rented.

Goodwill: Long-term asset that arises when 2 businesses are combined. These assets

cannot be separated from the business and sold. Represents the future economic

beneﬁts that will arise from the combination.

Long-Term Assets: Companies invest in long-term assets to generate future revenues.

Usually are sources of signiﬁcant costs, and will impact operations for many years into

the future. Purchasing and proceeds from long-term assets are considered investing

activities.

Valuation of PP&E

Under IFRS, two models can be considered when determining the amount at which

PP&E will be reﬂected on the statement of ﬁnancial position.

Cost Model & Revaluation Model

Cost Model: PP&E are presented on the statement of ﬁnancial position at their carrying

amount — the portion of the asset that has yet to be expenses, not what the asset is

worth — which is: Cost - Accumulated depreciation (& accumulated impairment losses).

Accumulated Depreciation is a Contra-Asset account.

All PP&E are initially recorded at cost.

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Whats Included in Cost

-General guidelines is all costs necessary to acquire the asset and ready it for use

should be capitalized.

-Any cost incurred that is not capitalized as part of the asset cost would be expensed

in the period of the purchase.

-Costs that are capitalized

-Purchase price (less any discounts or rebates)

-Non-refundable taxes and import duties on the purchase price

-Legal costs associated with the purchase

-shipping or transportation costs

-Site preparation, installation, and set up costs

Purchase Price Allocation& Purchase of Multiple Assets

Basket purchase, also known as lump-sum purchase, is when a single purchase price is

charged for all of the items being acquired.

Relative Fair Value: allocates the purchase price. Can be done in different ways, 1.

having an appraisal, important to record the price paid not the appraisal price.

Subsequent Costs: Costs will be incurred to every asset, from maintenance to

renovations and alterations. To determine if the cost should be expensed through period

costs or capitalized. IF the costs extend the useful life of the asset passed expected life,

will they reduce operating costs, or improve output (quantity or quality). If yes then the

asset will produce future economic beneﬁt and should be capitalized, if not expensed.

Depreciation

We depreciate in order to allocate a portion of the asset’s cost to each of the period in

which the future economic beneﬁts embodied in the asset are being used up or

consumed.

Estimated Residual Value: Management estimate, the net amount that the company

expects would receive if the asset were sold i the condition it is expected to be in at the

end of its useful life. This portion is not expensed to the company as it expects to

recover the cost when ﬁnished with the asset.

Estimated Useful Life: Management estimate that can be determined by time (years) or

usage (hours, until or km).

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Document Summary

Also known as capital assets : property, plant and equipment (ta) Tangible assets: physical presence, such as land, buildings, machinery, furniture, computer equipment etc. These are purchased by companies to use them to generate revenues over multiple future periods. Intangible assets: long term assets without a presence, including things such as trademarks, patents, copyrights, licenses, franchise rights, and customer lists. These assets must be separately identi able from other assets, which means they can be resold, licensed or rented. Goodwill: long-term asset that arises when 2 businesses are combined. These assets cannot be separated from the business and sold. Represents the future economic bene ts that will arise from the combination. Long-term assets: companies invest in long-term assets to generate future revenues. Usually are sources of signi cant costs, and will impact operations for many years into the future. Purchasing and proceeds from long-term assets are considered investing activities.

Related Questions

Complex Balance Sheet

Presented below is the unaudited balance sheet as of December31, 2016, prepared by Zeus Manufacturing Corporationâsbookkeeper.

Zeus Manufacturing Corporation Balance Sheet for the Year Ended December 31, 2016
Assets		Liabilities and Shareholders' Equity
Cash	$225,000	Accounts payable	$133,800
Accounts receivable (net)	345,700	Mortgage payable	900,000
Inventories	560,000	Notes payable	500,000
Prepaid income taxes	40,000	Lawsuit liability	80,000
Investments	57,700	Income taxes payable	61,200
Land	450,000	Deferred tax liability	28,000
Building	1,750,000	Accumulated depreciation	420,000
Machinery and equipment	1,964,000	Total Liabilities	$2,123,000
Goodwill	37,000	Common stock, $50 par; 40,000 shares issued	$2,231,000
Total Assets	$5,429,400	Retained earnings	1,075,400
		Total Shareholders' Equity	$3,306,400
		Total Liabilities and Shareholders' Equity	$5,429,400

Your company has been engaged to perform an audit, during whichyou discover the following information:

Checks totaling $14,000 in payment of accounts payable weremailed on December 31, 2016, but were not recorded until 2017. Latein December 2016, the bank returned a customerâs $2,000 checkmarked "NSF," but no entry was made. Cash includes $100,000restricted for building purposes.

Included in accounts receivable is a $30,000 note due onDecember 31, 2019, from Zeusâs president.

During 2016, Zeus purchased 500 shares of common stock of amajor corporation that supplies Zeus with raw materials. Total costof this stock was $51,300, and fair value on December 31, 2016, was$47,000. The decline in fair value is considered temporary. Zeusplans to hold these shares indefinitely.

Treasury stock was recorded at cost when Zeus purchased 200 ofits own shares for $32 per share in May 2016. This amount isincluded in investments.

On December 31, 2016, Zeus borrowed $500,000 from a bank inexchange for a 10% note payable, maturing December 31, 2021. Equalprincipal payments are due December 31 of each year beginning in2017. This note is collateralized by a $250,000 tract of landacquired as a potential future building site, which is included inland.

The mortgage payable requires $50,000 principal payments, plusinterest, at the end of each month. Payments were made on January31 and February 28, 2017. The balance of this mortgage was due June30, 2017. On March 1, 2017, prior to issuance of the auditedfinancial statements, Zeus consummated a noncancelable agreementwith the lender to refinance this mortgage. The new terms require$100,000 annual principal payments, plus interest, on February 28of each year, beginning in 2018. The final payment is due February28, 2025.

The lawsuit liability will be paid in 2017.

Of the total deferred tax liability, $5,000 is considered acurrent liability.

The current income tax expense reported in Zeusâs 2016 incomestatement was $61,200.

The company was authorized to issue 100,000 shares of $50 parvalue common stock.

Required:

Prepare a corrected classified balance sheet as of December 31,2016.

Zeus Manufacturing Corporation Balance Sheet December 31, 2016
Assets
Current Assets:
Cash		$
Accounts receivable (net)
Inventories
Total current assets			$
Long-Term investment, at fair value
Property, Plant, and Equipment (at cost):
Land		$
Building	$
Machinery and equipment
Total
Less: Accumulated depreciation
Total property, plant, and equipment
Intangible Asset:
Goodwill
Other Assets:
Cash restricted for building purposes		$
Officer's note receivable
Land held for future building site
Total Assets			$
Liabilities
Current Liabilities:
Accounts payable		$
Current installments of long-term debt
Lawsuit liability
Income taxes payable
Deferred tax liability
Total current liabilities			$
Long-Term Debt:
Mortgage payable		$
Notes payable
Deferred tax liability
Total long-term debt
Total Liabilities			$
Shareholders' Equity
Contributed Capital:
Common stock, $50 par value		$
Additional paid-in capital
Total paid-in capital		$
Retained earnings
Accumulated Other Comprehensive Loss:
Unrealized decrease in value of long-term investment
Total		$
Less: Cost of treasury stock
Total Shareholders' Equity
Total Liabilities and Shareholders' Equity			$

browncattle687

Can someone please provide the solutions. No explanation needed,just the answers so I can double check my work.

2. Firms with tangiblelong-term assets and less predictable cash flows, such as automanufacturers and steel companies, whose sales vary with changes ineconomic conditions, tend to use

a.	a more nearly equal mix of long-term debt and shareholdersâequity financing.
b.	a greater amount of long-term debt [80%] than shareholdersâequity financing [20%].
c.	a smaller amount of long-term debt [20%] than shareholdersâequity financing [80%].
d.	a greater amount of long-term debt [80%] than assets [20%].
e.	a greater amount of shareholdersâ equity [80%] than assets[20%].

3. During Year 3,Carrington Company made the following expenditures relating toplant machinery and equipment:

Â·	Continuing, frequent, and low cost repairs	$46,000
Â·	Special long-term protection devices were attached to tenmachines	11,000
Â·	A broken gear on a machine was replaced	5,000

How much should be charged to repairs and maintenance in Year3?

a.	$46,000
b.	$51,000
c.	$57,000
d.	$41,000
e.	none of the above

4. Which of the followingis/are not capitalized as an intangible asset?

a.	costs of an internally developed patent
b.	legal costs to defend a patent successfully
c.	goodwill acquired when a company purchases another company
d.	costs to purchase a patent
e.	none of the above

5. Repairs and maintenancedo not include

a.	the costs of restoring an asset's service potential afterbreakdowns.
b.	expenditures that increase the asset's life.
c.	routine costs such as for cleaning and adjusting.
d.	major tune-ups including labor and parts.
e.	All of the above are not considered to be repairs ormaintenance.

12. Sigma Company suffers a loss to itsbuilding in a fire and spends $100,000 on repairs and improvements.It judges that $80,000 of the expenditure replaces long-livedassets lost in the fire, and $20,000 represents improvements to thebuilding. Which of the following is the single journal entry thatSigma Company will make?

a.	Building . . . . . . . . . . . . . . . . . . . . . . . . . . . .. . . . . . . . . . . . . . 100,000 Cash . . . . . . . . . . . . . . . . . . . . . . .. . . . . . . . . . . . . . . . . . . . . . . . .. 100,000
b.	Loss from Fire . . . . . . . . . . . . . . . . . . .. . . . . . . . . . . . . . . . 100,000 Cash . . . . . . . . . . . . . . . . . . . . . . .. . . . . . . . . . . . . . . . . . . . . . . .. 100,000
c.	Cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. . . . . . . . . . . . . . 100,000 Building . . . . . . . . . . . . . . . . . . . . .. . . . . . . . . . . . . . . . . . . . . . . . .. 20,000 Loss from Fire . . . . . . . . . . . .. . . . . . . . . . . . . . . . . . . . . . . . . . .. 80,000
d.	Building . . . . . . . . . . . . . . . . . . . . . . . . . . . .. . . . . . . . . . . . . . . 20,000 Loss from Fire . . . . . . . . . . . . . . . . . . .. . . . . . . . . . . . . . . . 80,000 Cash . . . . . . . . . . . . . . . . . . . . . . .. . . . . . . . . . . . . . . . . . . . . . . .. 100,000
e.	Cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. . . . . . . . . . . . . . . 100,000 Loss from Fire . . . . . . . . . . . .. . . . . . . . . . . . . . . . . . . . . . . . . . .. 100,000

16. Firms treat expenditures as assetswhen they:

a.	have acquired rights to the future use of a resource as a resultof a past transaction or event.
b.	can reliably measure the cost of the expected benefits at thetime of initial recognition.
c.	can exercise the entityâs right to, or control of, thebenefit.
d.	can obtain the future service potential and control othersâaccess to it.
e.	all of the above

Clarion Realty

Clarion Realty has decided to construct its own office building.The construction will be partially financed through a constructionloan and any remainder will be financed from internally generatedfunds. The internal accountants have collected the followinginformation concerning the construction.

	Average Balance	Construction	Other
Year	Construction Account	Debt @ 6%	Debt @ 10%
1	$2,000,000	$1,000,000	$500,000
2	$4,000,000	$1,000,000	$250,000
3	$3,000,000	$800,000	$200,000

22. The amount, if any, of capitalizedinterest cost for Year 1 is

a.	$0
b.	$50,000
c.	$60,000
d.	$110,000
e.	$170,000

23. The amount, if any, of capitalizedinterest cost for Year 2 is

a.	$0
b.	$50,000
c.	$60,000
d.	$180,000
e.	$230,000

33. When a firm constructs its ownbuildings or equipment:

a.	it recognizes the labor, material, and overhead costs incurredas an asset.
b.	U.S. GAAP and IFRS require firms to include, or capitalize,interest costs during construction in the cost of aself-constructed asset.
c.	it recognizes the labor, material, and overhead costs incurredas a period expense.
d.	U.S. GAAP and IFRS require firms to expense interest costsincurred during construction of a self-constructed asset.
e.	both choices a and b are correct.

complex Balance Sheet

Presented below is the unaudited balance sheet as of December31, 2016, prepared by Zeus Manufacturing Corporationâsbookkeeper.

Zeus Manufacturing Corporation Balance Sheet for the Year Ended December 31, 2016
Assets		Liabilities and Shareholders' Equity
Cash	$225,000	Accounts payable	$133,800
Accounts receivable (net)	345,700	Mortgage payable	900,000
Inventories	560,000	Notes payable	500,000
Prepaid income taxes	40,000	Lawsuit liability	80,000
Investments	57,700	Income taxes payable	61,200
Land	450,000	Deferred tax liability	28,000
Building	1,750,000	Accumulated depreciation	420,000
Machinery and equipment	1,964,000	Total Liabilities	$2,123,000
Goodwill	37,000	Common stock, $50 par; 40,000 shares issued	$2,231,000
Total Assets	$5,429,400	Retained earnings	1,075,400
		Total Shareholders' Equity	$3,306,400
		Total Liabilities and Shareholders' Equity	$5,429,400

Your company has been engaged to perform an audit, during whichyou discover the following information:

Included in accounts receivable is a $30,000 note due onDecember 31, 2019, from Zeusâs president.

Treasury stock was recorded at cost when Zeus purchased 200 ofits own shares for $32 per share in May 2016. This amount isincluded in investments.

The lawsuit liability will be paid in 2017.

Of the total deferred tax liability, $5,000 is considered acurrent liability.

The current income tax expense reported in Zeusâs 2016 incomestatement was $61,200.

The company was authorized to issue 100,000 shares of $50 parvalue common stock.

Required:

Prepare a corrected classified balance sheet as of December 31,2016.

Zeus Manufacturing Corporation Balance Sheet December 31, 2016
Assets
Current Assets:
Cash		$
Accounts receivable (net)
Notes payable
Total current assets			$

Property, Plant, and Equipment (at cost):
		$
	$

Total

Total property, plant, and equipment
Intangible Asset:

Other Assets:
		$


Total Assets			$
Liabilities
Current Liabilities:
		$




Total current liabilities			$
Long-Term Debt:
		$


Total long-term debt
Total Liabilities			$
Shareholders' Equity
Contributed Capital:
		$

Total paid-in capital		$

Accumulated Other Comprehensive Loss:

Total		$

Total Shareholders' Equity
Total Liabilities and Shareholders' Equity			$

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ACCT-1001EL Study Guide - Final Guide: Intangible Asset, Impaired Asset, Book Value

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