1. © 2014 Cengage Learning. All Rights Reserved.
Learning Objectives
LO1 Record the buying of a plant asset.
LO2 Analyze the cost of individual assets bought as a bundle.
LO3 Calculate and record the payment of property tax.
© 2014 Cengage Learning. All Rights Reserved.

2. Lesson 19-1
Plant Assets
LO1
Accounting data can be used to predict the efficiency of an investment.
The ratio of the money earned on an investment relative to the amount of the investment is called return on investment, or ROI.
The more efficient the investment, the higher its ROI.
These predictions will help company managers decide which assets to buy.

3. Recording the Buying of a Plant Asset
Lesson 19-1
Recording the Buying of a Plant Asset
LO1
8,500.00
Store Equipment
January 3, 20X1. Paid cash for a shelving unit, $8, Check No. 612.
Cash
8,500.00 1
Account Title 2
Cost of the Plant Asset 3
Cash Paid

4. Recording the Buying of a Group of Assets
Lesson 19-1
Recording the Buying of a Group of Assets
LO2
Calculate the total estimated value of all the assets bought:
Estimated Value of Asset 1 +
Estimated Value of Asset 2 =
Total Estimated Value of All Assets Bought
$7,500.00 +
$22,500.00 =
$30,000.00

5. Recording the Buying of a Group of Assets
Lesson 19-1
Recording the Buying of a Group of Assets
LO2
Calculate the cost assigned to the copy machine (Asset 1):
Estimated Value of Asset 1 ÷
Total Estimated Value of All Assets Bought =
Percentage of Total Estimated Value
$7,500.00 ÷
$30,000.00 =
25%
Total Purchase Price ×
Percentage of Total Estimated Value =
Cost Assigned to Asset 1
$27,000.00 ×
25% =
$6,750.00

6. Recording the Buying of a Group of Assets
Lesson 19-1
Recording the Buying of a Group of Assets
LO2
Calculate the cost assigned to the display case (Asset 2):
Estimated Value of Asset 2 ÷
Total Estimated Value of All Assets Bought =
Percentage of Total Estimated Value
$22,500.00 ÷
$30,000.00 =
75%
Total Purchase Price ÷
Percentage of Total Estimated Value =
Cost Assigned to Asset 1
$27,000.00 ÷
75% =
$20,250.00

7. Recording the Buying of a Group of Assets
Lesson 19-1
Recording the Buying of a Group of Assets
LO2
6,750.00
Office Equipment
March 5, 20X1. Dufore Company bought a copy machine and a display case for $27, Check No. 234.
20,250.00
Store Equipment
Cash
27,000.00 1
Account Title for First Plant Asset 2
Amount Assigned to Asset 1 5
Total Cash Paid 3
Account Title for Second Plant Asset 4
Amount Assigned to Asset 2

8. Calculating and Paying Property Tax
Lesson 19-1
Calculating and Paying Property Tax
Land and anything attached to the land is called real property.
Real property is sometimes referred to as real estate.
All property not classified as real property is called personal property.
The value of an asset determined by tax authorities for the purpose of calculating taxes is called the assessed value.
Assessed value is usually based on the judgment of officials referred to as assessors.

9. Calculating and Paying Property Tax
Lesson 19-1
Calculating and Paying Property Tax
LO3
1,040.00
Property Tax Expense
Assessed Value ×
Tax Rate =
Annual Property Tax
$80,000.00 ×
1.30% =
$1,040.00
Cash
1,040.00 1
Account Title 2
Amount of Tax 3
Cash Paid

10. Lesson 19-1 Audit Your Understanding
1. Which accounts are affected, and how, when cash is paid for office equipment?
ANSWER
Office Equipment is debited; Cash is credited.

11. Lesson 19-1 Audit Your Understanding
2. Why must a cost be allocated to each asset bought in a group?
ANSWER
So that each plant asset can be depreciated individually

12. Lesson 19-1 Audit Your Understanding
3. What items are included in real property?
ANSWER
Land and anything attached to the land

13. © 2014 Cengage Learning. All Rights Reserved.
Learning Objectives
LO4 Calculate depreciation expense.
LO5 Calculate depreciation for a partial year.
LO6 Calculate accumulated depreciation and book value.
© 2014 Cengage Learning. All Rights Reserved.

14. Calculating Straight-Line Depreciation
Lesson 19-2
Calculating Straight-Line Depreciation
LO4
Original Cost −
Estimated Salvage Value =
Estimated Total Depreciation Expense
$8,500.00 −
$500.00 =
$8,000.00
Estimated Total Depreciation Expense ÷
Years of Estimated Useful Life =
Annual Depreciation Expense
$8,000.00 ÷ 4 =
$2,000.00

15. Calculating Depreciation Expense for Part of a Year
Lesson 19-2
Calculating Depreciation Expense for Part of a Year
LO5
Annual Depreciation Expense ÷
Months in Year =
Monthly Depreciation Expense
$900.00 ÷ 12 =
$75.00
Monthly Depreciation Expense ×
Number of Months Asset Is Used =
Prior Year’s Depreciation Expense
$75.00 × 4 =
$300.00

16. Calculating Accumulated Depreciation
Lesson 19-2
Calculating Accumulated Depreciation
LO6
20X2 Accumulated Depreciation +
20X3 Depreciation Expense =
20X3 Accumulated Depreciation
$1,200.00 +
$900.00 =
$2,100.00

17. Calculating Book Value
Lesson 19-2
Calculating Book Value
LO6
Original Cost −
Accumulated Depreciation =
Ending Book Value
$3,000.00 −
$2,700.00 =
$300.00

18. Lesson 19-2 Audit Your Understanding
1. Which accounting concept is being applied when depreciation expense is recorded for plant assets?
ANSWER
Matching Expenses with Revenue

19. Lesson 19-2 Audit Your Understanding
2. What three amounts are used to calculate a plant asset’s annual depreciation expense using the straight-line method of depreciation?
ANSWER
Original cost, estimated salvage value, and estimated useful life 

20. © 2014 Cengage Learning. All Rights Reserved.
Learning Objectives
LO7 Prepare plant asset records.
LO8 Journalize annual depreciation expense.
© 2014 Cengage Learning. All Rights Reserved.

21. Preparing Plant Asset Records
Lesson 19-3
Preparing Plant Asset Records
LO7
An accounting form on which a business records information about each plant asset is called a plant asset record.

22. Content of Plant Asset Records
Lesson 19-3
Content of Plant Asset Records
LO7
Most plant asset records contain similar information.
Section 1 is prepared when a plant asset is bought.
Section 2 provides space for recording the disposition of the plant asset. When the asset is disposed of, this information will be filled in.
Section 3 provides space for recording annual depreciation expense and the changing book value of the asset each year it is used.

23. Preparing Plant Asset Records
Lesson 19-3
Preparing Plant Asset Records
LO7 1
Write the information in Section 1 when the plant asset is bought.
Do not write in Section 2 until the asset is disposed of. 2
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. 3

24. Journalizing Annual Depreciation Expense
Lesson 19-3
Journalizing Annual Depreciation Expense
LO8
Dec. 31 Bal. 325,648.16
Office Equipment
Dec. 31 Adj. 25,146.00
Depreciation Expense—Office Equipment
Accumulated Depreciation—Office Equipment
Dec. 31 Bal. 79,727.00
Dec. 31 Adj. 25,146.00
(Dec. 31 Bal. 104,873.00)

25. Journalizing Annual Depreciation Expense
Lesson 19-3
Journalizing Annual Depreciation Expense
LO8 1
Debit Depreciation Expense 2
Credit Accumulated Depreciation

26. Lesson 19-3 Audit Your Understanding
1. How is accumulated depreciation recorded so as to retain the original cost information for plant assets?
ANSWER
Depreciation is credited to the contra account, Accumulated Depreciation, rather than crediting the asset account.

27. Lesson 19-3 Audit Your Understanding
2. How does an adjusting entry for depreciation expense change the balance of the asset account?
ANSWER
The balance of the asset account is not changed.

28. © 2014 Cengage Learning. All Rights Reserved.
Learning Objectives
LO9 Record the sale of a plant asset for book value.
LO10 Record the sale of a plant asset for more/less than book value.
© 2014 Cengage Learning. All Rights Reserved.

29. Selling a Plant Asset for Book Value
Lesson 19-4
Selling a Plant Asset for Book Value
LO9
500.00
Cash
8,000.00
Accumulated Depreciation—Store Equipment
Bal. 8,000.00
8,500.00
Store Equipment
Bal. 8,500.00

30. Selling a Plant Asset for Book Value
Lesson 19-4
Selling a Plant Asset for Book Value
LO9
January 2, 20X5. Received cash from sale of shelving unit, $500.00: original cost, $8,500.00; total accumulated depreciation through December 31, 20X4, $8, Receipt No. 543. 1
Remove the original cost of the plant asset and its related accumulated depreciation. Record the cash received. 2
Complete Section 2 of the plant asset record.

31. Recording Depreciation Expense on Disposal of an Asset
Lesson 19-4
Recording Depreciation Expense on Disposal of an Asset
LO9
May 1, 20X5. Recorded a partial year’s depreciation on a desk to be sold, $ Memorandum No. 72.
Add Depr
Depreciation Expense—Store Equipment
Bal. 1,200.00
Add Depr
(New Bal. 1,300.00)
Accumulated Depreciation—Store Equipment

32. Recording Depreciation Expense on Disposal of an Asset
Lesson 19-4
Recording Depreciation Expense on Disposal of an Asset
LO9 1
Debit Depreciation
Expense account. 2
Credit the Accumulated
Depreciation account. 3
Update Section 3 of the plant asset record.
Year
Annual Depreciation Expense
Accumulated Depreciation
Ending Book Value
20X1 $
$ 1,700.00
20X2
300.00
600.00
1,400.00
20X3
900.00
1,100.00
20X4
1,200.00
800.00
20X5
100.00
1,300.00
700.00

33. Selling a Plant Asset for More Than Book Value
Lesson 19-4
Selling a Plant Asset for More Than Book Value
LO10
850.00
Cash
1,300.00
Accumulated Depreciation—Store Equipment
Bal. 1,300.00
Store Equipment
2,000.00
Bal. 2,000.00
Gain on Plant Assets
150.00

34. Selling a Plant Asset for More Than Book Value
Lesson 19-4
Selling a Plant Asset for More Than Book Value
LO10
May 1, 20X5. Received cash from sale of desk, $850.00: original cost, $2,000.00; accumulated depreciation through May 1, 20X5, $1, Receipt No. 582. 1
Record an entry to remove the asset and its accumulated depreciation, record the gain, and record cash. 2
Complete Section 2 of
the plant asset record.

35. Selling a Plant Asset for Less Than Book Value
Lesson 19-4
Selling a Plant Asset for Less Than Book Value
LO10
The decrease in equity that results when a plant asset is sold for less than book value is called loss on plant assets.

36. Selling a Plant Asset for Less Than Book Value
Lesson 19-4
Selling a Plant Asset for Less Than Book Value
LO10
200.00
Cash
3,300.00
Accumulated Depreciation—Store Equipment
Bal. 3,300.00
Loss on Plant Assets
300.00
Office Equipment
3,800.00
Bal. 3,800.00

37. Selling a Plant Asset for Less Than Book Value
Lesson 19-4
Selling a Plant Asset for Less Than Book Value
LO10
October 6, 20X6. Received cash from sale of a computer, $200.00: original cost, $3,800.00; total accumulated depreciation through October 1, 20X6, $3, Receipt No. 645. 1
Record an entry to remove the asset and its accumulated depreciation, record the loss, and record cash. 2
Complete Section 2 of
the plant asset record.

38. Lesson 19-4 Audit Your Understanding
1. What is recorded on plant asset records for plant assets that have been disposed of?
ANSWER
Disposal date, disposal method, and disposal amount 

39. Lesson 19-4 Audit Your Understanding
2. When an asset is disposed of after the beginning of the fiscal year, what entry may need to be recorded before an entry is made for the discarding of a plant asset?
ANSWER
Partial year’s depreciation

40. Lesson 19-4 Audit Your Understanding
3. What is the formula to calculate the gain or loss on the sale of a plant asset?
ANSWER
Cash received less the book value of the asset sold 

41. Lesson 19-4 Audit Your Understanding
4. In which account classification is Loss on Plant Assets listed?
ANSWER
Other Expenses

42. © 2014 Cengage Learning. All Rights Reserved.
Learning Objective
LO11 Calculate depreciation using the double declining-balance method.
© 2014 Cengage Learning. All Rights Reserved.

43. Calculating Depreciation Using the Double Declining-Balance Method
Lesson 19-5
Calculating Depreciation Using the Double Declining-Balance Method
LO11
Any method of depreciation that records greater depreciation expense in the early years and less depreciation expense in the later years is called accelerated depreciation.
The declining-balance method of depreciation is a type of accelerated depreciation that multiplies the book value of an asset by a constant depreciation rate to determine annual depreciation.
A declining-balance rate that is two times the straight-line rate is called the double declining-balance method of depreciation.

44. Calculating Depreciation Using the Double Declining-Balance Method
Lesson 19-5
Calculating Depreciation Using the Double Declining-Balance Method
LO11
Estimated Depreciation Expense ÷
Years of Estimated Useful Life =
Straight-Line Rate of Depreciation
100% ÷ 5 =
20%
Straight-Line Rate of Depreciation ×
Multiply by Two =
Double Declining-Balance Rate of Depreciation
20% × 2 =
40%

45. Calculating Depreciation Using the Double Declining-Balance Method
Lesson 19-5
Calculating Depreciation Using the Double Declining-Balance Method
LO11
Plant Asset: Automobile Original Cost: $30,000.00
Depreciation Method: Double Declining-Balance Estimated Salvage Value: $2,500.00
Estimated Useful Life: 5 years
Year
Beginning Book Value
Declining- Balance Rate
Annual Depreciation
Ending Book Value 1
$30,000.00
40%
$12,000.00
$18,000.00 2
18,000.00
7,200.00
10,800.00 1
Calculate rate. 2
Determine the annual depreciation expense. 3
Determine the ending book value. 4
Transfer the book value to the following year.

46. Calculating Depreciation Expense in the Final Year
Lesson 19-5
Calculating Depreciation Expense in the Final Year
LO11
Plant Asset: Automobile Original Cost: $30,000.00
Depreciation Method: Double Declining-Balance Estimated Salvage Value: $2,500.00
Estimated Useful Life: 5 years
Year
Beginning Book Value
Declining- Balance Rate
Annual Depreciation
Ending Book Value 1
$30,000.00
40%
$12,000.00
$18,000.00 2
18,000.00
7,200.00
10,800.00 3
4,320.00
6,480.00 4
2,592.00
3,888.00 5 —
1,388.00
2,500.00
Total Depreciation
$27,500.00 2
Determine the last
year’s depreciation. 1
Transfer the
book value. 3
Verify the ending
book value.

47. Accelerated Depreciation Methods
Lesson 19-5
Accelerated Depreciation Methods
LO11
The double declining-balance method of depreciation is one method of accelerated depreciation.
All accelerated methods have one thing in common—more depreciation is charged in the first year than in the later years.
GAAP allows each business to choose either straight-line or accelerated depreciation for financial reporting.
But, once chosen, the business should use the same method from year to year.

48. Modified Accelerated Cost Recovery System (MACRS)
Lesson 19-5
Modified Accelerated Cost Recovery System (MACRS)
LO11
The U.S. Internal Revenue Service has published rules that must be applied when calculating the amount of depreciation expense that is used to compute a business’s federal income tax obligation.
Those rules are called the Modified Accelerated Cost Recovery System (MACRS).
MACRS is an accelerated depreciation method.

49. Comparing Two Methods of Depreciation
Lesson 19-5
Comparing Two Methods of Depreciation
LO11
Plant Asset: Automobile Original Cost: $6,000.00
Depreciation Method: Comparison of Two Methods Estimated Salvage Value: $500.00
Estimated Useful Life: 5 years
Straight-Line Method
Double Declining-Balance Method
Year
Beginning Book Value
Annual Depreciation
Ending Book Value 1
$6,000.00
$1,100.00
$4,900.00
$2,400.00
$3,600.00 2
4,900.00
1,100.00
3,800.00
3,600.00
1,440.00
2,160.00 3
2,700.00
864.00
1,296.00 4
1,600.00
518.40
777.60 5
500.00
777.6
277.60
Total Depreciation
5,500.00

50. Lesson 19-5 Audit Your Understanding
1. When calculating depreciation expense using the declining-balance method, what number stays constant each fiscal period?
ANSWER
Depreciation rate

51. Lesson 19-5 Audit Your Understanding
2. What is the declining-balance method that uses twice the straight-line rate?
ANSWER
Double declining-balance method

52. Lesson 19-5 Audit Your Understanding
3. What change occurs in the annual depreciation expense calculated using the declining-balance method?
ANSWER
Depreciation expense declines each year

53. Lesson 19-5 Audit Your Understanding
4. An asset is never depreciated below what amount?
ANSWER
Its estimated salvage value

54. © 2014 Cengage Learning. All Rights Reserved.
Learning Objectives
LO12 Record the buying of an intangible asset.
LO13 Calculate and record amortization expense.
© 2014 Cengage Learning. All Rights Reserved.

55. Recording the Buying of an Intangible Asset
Lesson 19-6
Recording the Buying of an Intangible Asset
LO12
An asset that does not have physical substance is called an intangible asset.
Intangible assets include patents, copyrights, trademarks, and other similar items.
The value of an intangible asset such as a patent comes from the rights it gives to the patent holder, not from the piece of paper that ensures those rights.

56. Recording the Buying of an Intangible Asset
Lesson 19-6
Recording the Buying of an Intangible Asset
LO12
45,000.00
Patent
January 2, 20X1. Paid cash for a patent, $45, Check No. 628.
Line of Credit
45,000.00 1
Account Title 2
Cost of the Asset 3
Cash Paid

57. Calculating and Recording Amortization Expense
Lesson 19-6
Calculating and Recording Amortization Expense
LO13
Amortization is the spreading of the cost of an intangible asset over its useful life.
Amortization is similar to depreciation, which applies only to physical assets.
Some intangible assets have a legal life, such as a patent.

58. Calculating and Recording Amortization Expense
Lesson 19-6
Calculating and Recording Amortization Expense
LO4
Original Cost −
Estimated Salvage Value =
Estimated Total Amortization Expense
$45,000.00 −
$0.00 =
Estimated Total Amortization Expense ÷
Years of Estimated Useful Life =
Annual Amortization Expense
$45,000.00 ÷ 10 =
$4,500.00

59. Calculating and Recording Amortization Expense
Lesson 19-6
Calculating and Recording Amortization Expense
LO13
4,500.00
Amortization Expense
Bal. 45,000.00
(New Bal. 40,500.00)
Patent
4,500.00 1
Debit Amortization Expense 2
Credit Patent

60. Lesson 19-6 Audit Your Understanding
1. Which account is debited when recording amortization on a patent?
ANSWER
Amortization Expense

61. Lesson 19-6 Audit Your Understanding
2. Which account is credited when recording amortization on a patent?
ANSWER
Patent