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Chapter 9: Q12RQ (page 525)
What financial statements are property, plant, and equipment reported on, and how?
Thenon-current asset section of the balance sheet reports the property, plant, and equipment.
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Making a lump-sum purchase of assets Maplewood Properties bought three lots in a subdivision for a lump-sum price. An independent appraiser valued the lots as follows:
Lot | Appraised Value |
1 | \(144,000 |
2 | 96,000 |
3 | 240,000 |
Maplewood paid \)355,000 in cash. Record the purchase in the journal, identifying each lot鈥檚 cost in a separate Land account. Round decimals to two places, and use the computed percentages throughout.
Computing the asset turnover ratio Biagas, Inc. had net sales of \(55,600,000 for the year ended May 31, 2018. Its beginning and ending total assets were \)52,800,000 and $98,500,000, respectively. Determine Biagas鈥檚 asset turnover ratio for year ended May 31, 2018.
: Distinguishing capital expenditures from revenue expenditures consider the following expenditures:
a. Purchase price.
b. Ordinary recurring repairs to keep the machinery in good working order.
c. Lubrication before machinery is placed in service.
d. Periodic lubrication after machinery is placed in service.
e. Major overhaul to extend useful life by three years.
f. Sales tax paid on the purchase price.
g. Transportation and insurance while machinery is in transit from seller to buyer.
h. Installation.
i. Training of personnel for initial operation of the machinery. Classify each of the expenditures as a capital expenditure or revenue expenditure
Define property, plant, and equipment. Provide some examples.
Question:Jim Reed manages a fleet of utility trucks for a rural county government. He鈥檚 been in his job for 30 years, and he knows where the angles are. He makes sure that when new trucks are purchased, the residual value is set as low as possible. Then, when they become fully depreciated, they are sold off by the county at residual value. Jim makes sure his buddies in the construction business are first in line for the bargain sales, and they make sure he gets a little something back. Recently, a new county commissioner was elected with vows to cut expenses for the taxpayers. Unlike other commissioners, this man has a business degree, and he is coming to visit Jim tomorrow.
Requirements
1. When a business sells a fully depreciated asset for its residual value, is a gain or loss recognized?
2. How do businesses determine what residual values to use for their various assets? Are there 鈥渉ard and fast鈥� rules for residual values?
3. How would an organization prevent the kind of fraud depicted here?
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