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Chapter 9: Q2RQ (page 525)
Plant assets are recorded at historical cost. What does the historical cost of a plant asset include?
Yes, Plant assets are recorded at historical cost.
Historical costs include the entire amount paid to acquire the assets and make them ready for use.
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: 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
Which depreciation method ignores residual value until the last year of depreciation? Why?
Define property, plant, and equipment. Provide some examples.
What is an intangible asset? Provide some examples
Dylan worked for a propane gas distributor as an accounting clerk in a small Midwestern
town. Last winter, his brother Mike lost his job at the machine plant. By January,
temperatures were sub-zero, and Mike had run out of money. Dylan saw that Mike鈥檚
account was overdue, and he knew Mike needed another delivery to heat his home. He
decided to credit Mike鈥檚 account and debit the balance to the parts inventory because he
knew the parts manager, the owner鈥檚 son, was incompetent and would never notice the
extra entry. Months went by, and Dylan repeated the process until an auditor ran across
the charges by chance. When the owner fired Dylan, he said, 鈥淚f you had only come to
me and told me about Mike鈥檚 situation, we could have worked something out.鈥�
Requirements
1. What can a business like this do to prevent team member fraud of this kind?
2. What effect would Dylan鈥檚 actions have on the balance sheet? The income statement?
3. How much discretion does a business have about accommodating
hardship situations?
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