LESSON 18-1 Buying Plant Assets and Paying Property Tax 4/20/2019 LESSON 18-1 Buying Plant Assets and Paying Property Tax

TERMS REVIEW (Calculating and Paying Property Taxes) page 537 Real Property—land and anything attached to the land Personal Property—all property not classified as real property Assessed Value—the value of an asset determined by tax authorities (state and federal) for the purpose of calculating taxes Property Tax Expense (new account) LESSON 18-1

Plant Assets Plant Assets—assets that will be used for a limited number of years in the operation of a business Equipment Office Warehouse Transportation Buildings Land

RECORDING THE BUYING OF A PLANT ASSET page 535 January 3, 20X1. Paid cash for a display case, $3,250.00. Check No. 4. 1 2 4 3 1. Account title 3. Cash paid 2. Cost of the plant asset 4. Post LESSON 18-1

CALCULATING AND PAYING PROPERTY TAX page 536 February 1. Classic Parts, Inc., paid cash for property tax, $720.00. Check No. 69. Annual Property Tax = Tax Rate × Assessed Value $60,000.00 × 1.2% (.012) = $720.00 LESSON 18-1

LESSON 18-1 Calculating Depreciation Expense 4/20/2019 LESSON 18-2 Calculating Depreciation Expense

STRAIGHT-LINE DEPRECIATION page 538 Calculating Annual Depreciation Expense 1. Subtract the asset’s estimated salvage value from the original cost. 2. Divide the estimated total depreciation expense by the years of estimated useful life. Estimated Salvage Value Original Cost Estimated Total Depreciation Expense = – $3,250.00 – $250.00 = $3,000.00 1 Annual Depreciation Expense = Years of Estimated Useful Life ÷ Estimated Total Depreciation Expense $3,000.00 ÷ 5 = $600.00 2 LESSON 18-1

CALCULATING DEPRECIATION EXPENSE FOR PART OF A YEAR page 539 Calculating Partial Year’s Depreciation Expense 1. Divide the annual depreciation expense by 12. 2. Multiply the monthly depreciation expense by the number of months the plant asset is used in a year. Months in a Year Annual Depreciation Expense Monthly Depreciation Expense = ÷ $600.00 ÷ 12 = $50.00 1 Partial Year’s Depreciation Expense = Number of Months Asset Is Used × Monthly Depreciation Expense $50.00 × 5 = $250.00 2 LESSON 18-1

CALCULATING ACCUMULATED DEPRECIATION page 540 20X3 Depreciation Expense 20X2 Accumulated Depreciation 20X3 Accumulated Depreciation = + $1,200.00 + $600.00 = $1,800.00 LESSON 18-1

CALCULATING BOOK VALUE page 540 Accumulated Depreciation Original Cost Ending Book Value = – $3,250.00 – $1,800.00 = $1,450.00 Annual Depreciation Beginning Book Value Ending Book Value = – $2,050.00 – $600.00 = $1,450.00 LESSON 18-1

LESSON 18-1 Journalizing Depreciation Expense 4/20/2019 LESSON 18-3 Journalizing Depreciation Expense

PREPARING PLANT ASSET RECORDS page 542 1 1. Write the information in Section 1 when the asset is purchased. 2 2. Do not write in Section 2 until the asset is disposed of. 3 3. Each year the asset is owned, record the year’s annual depreciation expense in Section 3. Calculate and record accumulated depreciation and ending book value. LESSON 18-1

JOURNALIZING ANNUAL DEPRECIATION EXPENSE page 543 2 3 1 1. Depreciation Expense debit 2. Accumulated Depreciation credit 3. Record adjusting entry LESSON 18-1

POSTING AN ADJUSTING ENTRY FOR DEPRECIATION EXPENSE page 544 1. Debit Depreciation Expense. 2. Credit Accumulated Depreciation. 1 2 LESSON 18-1

TERM REVIEW page 545 plant asset record LESSON 18-1

LESSON 18-1 Disposing of Plant Assets 4/20/2019 LESSON 18-4 Disposing of Plant Assets

SALE OF A PLANT ASSET FOR BOOK VALUE page 546 January 6, 20X6. Received cash from sale of display case, $250.00: original cost, $3,250.00; total accumulated depreciation through December 31, 20X5, $3,000.00. Receipt No. 4. 1 2 1. Record an entry in the cash receipts journal to remove the original cost. 2. Check the type of disposal, and write the date, and disposal amount in Section 2 of the plant asset record. LESSON 18-1

RECORDING A PLANT ASSET’S DEPRECIATION EXPENSE FOR A PARTIAL YEAR page 547 April 4, 20X7. Recorded a partial year’s depreciation on a safe to be sold, $60.00. Memorandum No. 31. 1 2 3 1. Debit the depreciation expense account. 2. Credit the accumulated depreciation account. 3. Update Section 3 of the plant asset record. LESSON 18-1

SALE OF A PLANT ASSET FOR MORE THAN BOOK VALUE page 548 April 4, 20X7. Received cash from sale of safe, $425.00: original cost, $1,800.00; accumulated depreciation through April 4, 20X7, $1,500.00. Receipt No. 47. 1 1. Remove the original cost. Record the gain on the sale. Record the cash received from the sale. 2 2. Check the type of disposal. Write the date and disposal amount in Section 2 of the plant asset record. LESSON 18-1

SALE OF A PLANT ASSET FOR LESS THAN BOOK VALUE page 549 October 6, 20X7. Received cash from sale of a computer, $150.00: original cost, $1,900.00; total accumulated depreciation through October 1, 20X7, $1,500.00. Receipt No. 281. 1 2 1. Remove the original cost. Record the loss on the sale. Record the cash received from the sale. 2. Check the type of disposal and write the date and disposal amount in Section 2. LESSON 18-1

TERMS REVIEW gain on plant assets loss on plant assets page 550 LESSON 18-1

LESSON 18-1 Declining-Balance Method of Depreciation 4/20/2019 LESSON 18-5 Declining-Balance Method of Depreciation

CALCULATING DEPRECIATION USING THE DOUBLE DECLINING-BALANCE METHOD page 551 1 2 3 4 1. Calculate the double declining-balance rate. 2. Determine the annual depreciation expense. 3. Determine the ending book value. 4. Transfer the ending book value to the beginning book value for the following year. LESSON 18-1

CALCULATING THE LAST YEAR’S DEPRECIATION EXPENSE page 552 1 2 3 1. Transfer the ending book value from Year 4 to the beginning book value of Year 5. 2. Subtract the salvage value from the beginning book value to determine the depreciation expense for the last year. 3. Verify that the ending book value is equal to the salvage value. LESSON 18-1

COMPARISON OF TWO METHODS OF DEPRECIATION page 553 LESSON 18-1

TERM REVIEW declining-balance method of depreciation page 554 LESSON 18-1