Student Version o Repetition is an important component, a key part of learning. In memory, the more times patterns of thought are repeated, the more likely you will be able to recall information. o These PowerPoint slides have been modified from the lecture decks by making them fill-in-the-blank. Why? So that you get an opportunity to repeat a visual cue (from the lecture or the book) via completing text here. o In addition, most text book exhibits have been removed as they are available in your text directly.

c Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, or posted to a publicly accessible website, in whole or in part. Fixed Assets and Intangible Assets Chapter 10

c Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, or posted to a publicly accessible website, in whole or in part. Learning Objective Define, classify, and account for the cost of fixed assets 1

Nature of ______ Assets o Fixed ______ are long-term or relatively ______ assets, such as ______, ______, ______, and ______. Other descriptive titles for fixed assets are ______ ______ or ______, ______, and ______.

Nature of ______ Assets o ______ ______ have the following characteristics:  ________________________________________

C LASSIFYING C OSTS

Costs of ______ Fixed Assets o Unnecessary costs that do not ______ the asset’s ______ are recorded as an expense.  ______________________________  Uninsured theft  ______________________________

Capital and Revenue Expenditures o _________ that benefit only the current period are called _________ ______.

Capital and Revenue Expenditures o ______ that improve the asset or ______ its ______ ______ are ______ ___________.

____________ AND ____________ E XPENDITURES ____________ Expenditures  ____________ ____________ ____________ ____________ Expenditures  ____________ ____________ ____________

____________ ____________ and Repairs o On April 9, the firm paid $300 for a tune-up of a delivery truck. __________

Asset ____________ o On May 4, a $5,500 hydraulic lift was installed on the delivery truck to allow for easier and quicker loading of heavy cargo. _________

________ ________ ____________ Repairs The engine of a forklift that is near the end of its useful life is overhauled at a cost of $4,500, which extends its useful life by eight years. Work on the forklift was completed on October 14.

____________ Fixed Assets o The ____________ parties to a lease contract are as follows:  __________________________________________

____________ Fixed Assets o A ____________ lease is accounted for as if the ____________ has, in fact, purchased the asset. The asset is then ____________ (written off as an ____________ ) over the life of the ____________ ___________.

Leasing Fixed Assets o A ____________ that is not classified as a capital lease for accounting purposes is classified as an ____________ ____________. An ____________ ____________ is treated as an ____________, because the ____________ is renting the asset for the ____________ ____________.

c Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, or posted to a publicly accessible website, in whole or in part. Compute depreciation, using the following methods: straight-line method, units-of-production method, and double-declining-balance method 2 Learning Objective

Depreciation o Over time, most ____________ assets (____________, ____________, and ____________ ____________ ) lose their ability to ____________ ____________. The periodic recording of the ____________ of ____________ assets as an ____________ is called ____________.

Accounting for ____________ o ____________ can be caused by ____________ or ____________ factors.  ______________________________________ ______________________________________ ______________________________________

Accounting for Depreciation o Two common misuderstandings that exist about ____________ as used in accounting include:  ______________________________________ ______________________________________ ______________________________________

Factors in ____________ Depreciation o ____________ factors determine the depreciation expense for a ____________ ____________. These three factors are:  ______________________________________

Factors in Computing Depreciation o The ____________ ____________ life of a fixed asset is ____________ at the time the asset is ____________ into ____________. The ____________ value of a fixed asset at the end of its ____________ ____________ is also ____________ at the time the asset is ____________ into ____________.

______ - ______ Method o The ____-____ method provides for the ______ amount of depreciation expense for ______ ______ of the asset’s ______ ______. Annual Depreciation =

Annual Depreciation = Cost – Residual Value Useful Life $ - $ years = $________ = $________ ______-_______ Method  Initial cost: $24,000  Expected useful life5 years  Estimated residual value: $2,000 o The annual _______-_________ depreciation of $ ______ is computed below:

$ $_______ x ____/12 = $ ______ ______ -Line Method o If the preceding equipment was purchased and placed into service on October 1, the depreciation for the first year of use would be $_______, computed as follows:

Units - __ - ___________ Method o The ____-_-_______ method provides the same amount of depreciation expense for each ______ ______ or ______ unit of ______ used by the asset.  Step 1. Determine the depreciation per unit as:  Step 2. Compute the depreciation expense as: Depreciation Expense = __________________ x _______________ Depreciation per Unit =

________ - ________ - Balance Method o The ___-__-___ method provides for a ________ periodic expense over the ________ ________ life of the asset.

(continued) ________ - ________ -Balance Method o The ___-_____ -balance method is applied in three steps:  Step 1.________________________________________ ________________________________________ ________________________________________  Step 2.________________________________________ ________________________________________ ________________________________________  Step 3.________________________________________ ________________________________________ ________________________________________

Double-Declining-Balance Method o The double-declining-balance rate is determined by ________ the ____-____ rate. o A shortcut to determining the ___-_____ rate is to divide ________ by the ________ of ________ (for example, 1 ÷ _____ = ____). o Using the double-declining-balance method, a five-year life results in a ________ ________ rate ( ____x____ ).

Double-Declining-Balance Method o For the first year, the book value of the equipment is its initial cost of $24,000. o After the ________ year, the ________ value ( ________ minus ________ ________ ) declines and, thus, the ________ also ________.

Double-Declining-Balance Method o If the preceding equipment was purchased and placed into service on October 1, depreciation for the year ending December 31 would be $ ________, computed as follows: = $ _____ x __/12 = $ ______ First year partial depreciation

= [40% x ($24,000 – $ ______ )] Second year depreciation $ = $ ________ Second year depreciation Double-Declining-Balance Method o The depreciation for the ________ year would then be $ ________, computed as follows:

Double-Declining-Balance Method o The double-declining-balance method provides a ________ depreciation in the ________ year of the asset’s use, followed by ________ ________ amounts. Thus, it is called an ________ ________ method.

Depreciation for Federal Income Tax o The Internal Revenue Code specifies the ________ ________ ________ ________ ________ (MACRS) for use by businesses in computing depreciation for tax purposes.

Depreciation for Federal Income Tax o MACRS specifies ________ classes of useful life and depreciation rates for ________ of the ________ classes. The two most common classes are the ____-____ class (includes ________ and ___-_____ trucks) and the ____- year class (includes most ________ and ________ ).

c Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, or posted to a publicly accessible website, in whole or in part. Learning Objective Journalize entries for the disposal of fixed assets 3

________ Fixed Assets o Equipment acquired at a cost of $25,000 is fully depreciation at December 31, On February 14, 2014, the equipment is ________.

________ Fixed Assets o Equipment costing $6,000, with no residual value, is depreciated at an annual straight-line rate of 10%. After the December 31, 2013, adjusting entry, Accumulated Depreciation— Equipment has a $4,650 balance. On March 24, 2014, the asset is removed from ________ and ________.

Discarding Fixed Assets $_____ × ___/12

Discarding Fixed Assets o The discarding of the equipment is then recorded as shown below. (Note that this is the second of two entries on March 24.)

________ Fixed Assets o Equipment was purchased at a cost of $10,000. It had no estimated residual value and was depreciated at a straight-line rate of 10%. The equipment is sold for cash on October 12 of the eighth year of its use. The balance of the accumulated depreciation account as of the preceding December 31 is $7,000. (continued)

________ Fixed Assets o The entry to ________ the depreciation for the ________ months of the ________ year is as follows:

Selling Fixed Assets o After the current depreciation is recorded, the book value of the asset is $2,250 ($10,000 – $7,750).

Selling Fixed Assets o After the current depreciation is recorded, the book value of the asset is $2,250 ($10,000 – $7,750).

Selling Fixed Assets o After the current depreciation is recorded, the book value of the asset is $2,250 ($10,000 – $7,750).

c Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, or posted to a publicly accessible website, in whole or in part. Learning Objective Compute depletion and journalize the entry for depletion 4

Natural Resources o The process of transferring the cost of ________ ________ to an expense account is called ________.

________ ________  Step 1: Determine the ________ rate as:  Step 2: Multiply the ________ rate by the ________ extracted during the ________.

Natural Resources o The adjusting entry to record the depletion is shown below.

c Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, or posted to a publicly accessible website, in whole or in part. Learning Objective Describe the accounting for intangible assets, such as patents, copyrights, and goodwill 5

Intangible Assets o ________, ________, ________, and ________ are ____-____ assets that are used in the operations of a business and not held for sale. These assets are called ________ ________ because they ___ _____ exist physically.

________ ________ o The accounting for ________ ________ is similar to that for fixed assets. The major issues are:  Determining ____________________________________ ______________________________________________ ______________________________________________

________ o The exclusive right granted by the ________ ________ to produce and sell goods with one or more ________ ________ is called a _______. These rights continue in effect for ________ ________.

Patents o Because a ________ (as well as other ________ ________ ) does not exist ________, it is acceptable to ________ the asset. This approach is different from physical fixed assets, which require the use of a ________ asset account.

________ and Trademarks o The ________ ________ granted by the ________ ________ to publish and sell a ________, ________, or musical composition is called a ________. A ________ extends for 70 years beyond the ________ ________.

Copyrights and ________ o A ________ is a unique name, ________, or ________ used to ________ a business and its products. Most businesses identify their ________ with ® in their advertisements and on their products. ________ can be registered for ________ years and ________ for ________ - year periods thereafter.

________ o In business, ________ refers to an ________ ________ of a business that is created from such ________ factors as ________, ________ ________, ________, and ________ ________.

Goodwill o Generally accepted accounting principles (GAAP) permit ________ to be recorded in the accounts ________ if it is ________ determined by a ________.

c Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, or posted to a publicly accessible website, in whole or in part. Learning Objective Describe how depreciation expense is reported in an income statement and prepare a balance sheet that includes fixed assets and intangible assets 6

Fixed and Intangible ________ o ________ ________ are usually reported in the ________ ________ in a separate section ________ fixed assets. o The balance of each class of ________ ________ should be disclosed ________ of ________ ________. o The cost and related ________ ________ of mineral rights are normally shown as part of the ________ ________ section of the ________ ________.

c Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, or posted to a publicly accessible website, in whole or in part. Learning Objective Describe and illustrate the fixed asset turnover ratio to assess the efficiency of a company’s use of its fixed assets 7

________ ________ Turnover Ratio o One measure of the ________ - ________ efficiency of fixed assets is the ________ ________ ________ ________. It measures the number of ________ of ________ earned per dollar of ________ ________ and is computed as follows: Fixed Asset Turnover Ratio =

c Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, or posted to a publicly accessible website, in whole or in part. Appendix Exchanging Similar Fixed Assets

Exchanging Similar ________ ________ o Old equipment is often traded for ________ equipment having a ________ use. In such cases, the ________ allows the buyer a ____- ____ allowance for the ________ equipment traded in. o The remaining balance—the amount ________ —is either paid in cash or recorded as a ________. It is normally called ________.

c Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, or posted to a publicly accessible website, in whole or in part. Fixed Assets and Intangible Assets The End