ACG-2021 Lecture Notes - Lecture 9: Record Plant, Wheaties, Macrs

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violethippopotamus705

26 Oct 2016

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Physical substance (a de nite size and shape) Are used in the operations of a business. Are not intended for sale to customers. Are expected to provide service to the company for a number of years, except for land. Plant assets are critical to a company"s success. Historical cost principle - requires that companies record plant assets at cost. Cost consists of all expenditures necessary to acquire an asset and make it ready for its intended use. Capital expenditures - costs included in a plant asset account. Revenue expenditures - costs incurred to acquire a plant asset that are expensed immediately. Cost - cash paid in a cash transaction or the cash equivalent price paid. Fair value of the asset given up or. Fair value or the asset received, whichever is more clearly determinable. All necessary costs incurred in making land ready for its intended use increase (debit) the land account.

Related Questions

Property, plant and equipment (fixed assets) are valued at historical cost, the cost of the asset plus transportation and setup cost. The costs of fixed assets are capitalized based on the companyâs capitalization policy (threshold for determining fixed assets) and expensed over time referred to as depreciation expense. Do you think fair market value should be used instead?

rubykoala569

Question 1Acompany purchased for cash a machine with a list price of $90,000.The machine was shipped FOB shipping point at a cost of $5,000.Installation and test runs of the machine cost $3,000. Therecorded acquisition costof the machine is whichamount?

1	$98,000
2	$128,000
3	$90,000
4	$93,000

Question 2Small, ordinary repairs made to keepa truck running over its useful life have been debited to theVehicles account. As a result of this, which of the followingoccurred?

1	The balance in the Vehicles account was correctly stated.
2	The balance in the Vehicles account was overstated.
3	The expenses for the period were overstated.
4	The net income for the period was understated.

Question 3 Whatis the annual straight-linedepreciation for an asset thatcost $34,600, has an estimated service life of 8 years, and anestimated salvage valueof $1,400?

1	$4,150
2	$1,450
3	$4,325
4	$4,500

Question 4An asset cost $50,000, has anestimated salvage valueof $1,500, and an estimated usefullife of 8 years. What is thedouble-declining-balance depreciationrate?

1	20.0%
2	25.0%
3	16.0%
4	32.5%

Question 5An asset having a four-year servicelife and a salvage valueof $5,000 was acquired for $45,000cash on June 20. Ignore the half-year convention and calculate the depreciation expense at the end of the first year, December 31?

1	$10,000, under the straight-line method
2	$22,500, under the double-declining-balance method
3	$7,000, under the straight-line method
4	$11,250, under the double-declining-balance method

Question 6 Publicly traded companies can use adepreciation method that does not conform to generallyaccepted accounting principles but is based on a declining-balancemethod. What is the name of this accelerated depreciation method?

1	Asset Cost Recovery Statement
2	Asset Cost Recognition System
3	Modified Accelerated Cost Recovery System
4	Accelerated Cost Recovery System

Question 7 OnJune 28, 2011, a business sold for$1,500 a plant assetthat cost $5,000.The asset had a 5-year useful life, nosalvage value, and had been used by the business sinceJanuary 1, 2008. Straight-linedepreciation was used. Thefiscal year ends on December 31. What was the result of selling theplant asset?

1	No gain or loss on the disposal of plant assets
2	A $1,000 gain on the disposal of plant assets
3	A $500 loss on the disposal of plant assets
4	A $500 unrecognized gain on the sale of a plant asset.

Question 8Your company currently is generatingnormal earnings that are equal to a 12% return on net identifiable assets of $450,000. A comparable company is generatingnormal earnings that are equal to 10% return on net identifiableassets of $450,000. What is the estimated goodwill ofyour company, when compared to the other company?

1	$90,000
2	$45,000
3	$9,000
4	$15,000

Question 9The Baker Mining Company acquired aniron ore deposit for $2,000,000. The company's geologist estimatedthe deposit to contain 1,500,000 tons of iron ore. At the end ofthe first year, 60,000 tons had been extracted. The end-of-yearjournal entry to record thedepletion of the iron ore wouldinclude which of the following?

1	A credit to Iron Ore Inventory of $45,000
2	A credit to Accumulated Depletion of $80,000
3	A debit to Iron Ore Inventory of $50,000
4	None the above, until all of the ore is extracted

Question 10 Which of the following are investing activities?

1	Selling a plant asset
2	Exchanging an old asset and cash for a new plant asset
3	Depreciating or amortizing an asset
4	Both (A) and (B)

peachraccoon492

As a senior vice president of a major consumer productscorporation, you have been asked to review the following investmentand advise the CEO whether it should be pursued. The investmentinvolves buying a bottle manufacturer and making it a subsidiary ofyour beer division. The acquisition will benefit the firm byproviding a reliable internal source of bottles. The acquisitionprice will be $3,500,000. The bottle company has tangible assets of$2,500,000 and debt of $1,000,000 which must be paid off by theparent corporation (for a total of $4,500,000 in cash outlays). Ifthe transaction occurs, the beer division will also acquire anintangible asset of $2,000,000 to reflect the premium paid for thebottler. That intangible asset must be amortized over five years,resulting in an expense of $400,000 per year. The company will alsohave depreciation expense of $200,000 per year for the next tenyears on the bottler's property, plant, and equipment. No newequipment will need to be purchased during the operating life ofthe bottling plant. The company would have to make some changes atthe bottling plant in the first year following the acquisition tooptimize it for producing bottles for its beer plant. Those changeswill cost $300,000 (and will be expensed immediately).

On the plus side, the bottling plant will produce 20 millionbottles per year at a variable cost of $0.12 per bottle and a fixedoutlay cost of $1,500,000 per year. Currently, the beer divisionpays $0.25 per bottle and has sufficient volume that it can use asmany bottles as the bottling plant can produce. The bottling plantis expected to operate for ten years following acquisition beforeit becomes obsolete. At that point, it can be scrapped and the landsold, yielding $1,000,000 (received in December 2028), for a gainon sale of $500,000.

If the firm buys the bottler, the transaction will take place onDecember 31, 2018, with the new operations affecting the companystarting in 2019. By convention, costs and benefits receivedthroughout a year are treated for present value purposes asoccurring at the end of that year. There are no taxes and thefirm's discount rate is 10 percent.

Question:

Determine the net present value and NPVI for the corporation ifit buys the bottling company. (Use 2018 as year 0.)

*Make sure solution is detailed and can be seen clearly.*

ACG-2021 Lecture Notes - Lecture 9: Record Plant, Wheaties, Macrs

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