MGAB02H3 Chapter 9: Chapter 9 Notes
Techtronics is a leader in manufacturing computer chips, which is very capital-intensive. Because the production processes in computer chip manufacturing require sophisticated and rapidly changing technology, production and manufacturing assets in the chip industry tend to have relatively short useful lives. The following summary information relates to Techtronicsâ property, plant, and equipment for 2009 and 2010:
Techtronics (amounts in millions) 2009 2010
Property, Plant, and Equipment, at cost $ 46,052 $ 48,088
Accumulated Depreciation $(29,134) $(30,544)
Property, Plant, and Equipment, net $ 16,918 $ 17,544
Depreciation Expense $ 4,360 (2010 only)
Capital Expenditures, net $ 5,200 (2010 only)
Required Assume that Techtronics depreciates all property, plant, and equipment using the straight-line depreciation method and zero salvage value. Assume that Intel spends $6,000 on new depreciable assets in Year 1 and does not sell or retire any property, plant, and equipment during Year 1. a. Compute the average useful life that Techtronics used for depreciation in 2010. b. Project total depreciation expense for Year 1 using the following steps: (i) project depreciation expense for Year 1 on existing property, plant, and equipment at the end of 2010; (ii) project depreciation expense on capital expenditures in Year 1 assuming that Intel takes a full year of depreciation in the first year of service; and (iii) sum the results of (i) and (ii) to obtain total depreciation expense for Year 1. c. Project the Year 1 ending balance in property, plant, and equipment, both at cost and net of accumulated depreciation.
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?
Journalize the following events/transactions that Lobnitz entered into during the month.
Received $150,000 from issuing 10,000 shares of $1 par value Lobnitz common stock. (When recording this entry, credit TWO distinct ownersâ equity accounts.)
Purchased $30,000 of office furniture (property, plant, and equipment) on a credit basis.
Performed $300,000 of services for customers on a credit basis.
Incurred, but did not yet pay, $25,000 of wages expense for the month.
Collected $175,000 of accounts receivable.
Collected $36,000 from customers for work to be performed during the following month.
Recorded $5,000 of depreciation expense.