1. 11-1 Copyright  Houghton Mifflin Company. All rights reserved. Belverd E. Needles, Jr. Marian Powers Sherry K. Mills Henry R. Anderson - - - - - - - - - - - Multimedia Slides by: Dr. Paul J. Robertson New Mexico State University Steve Leask Steve Leask New Mexico State University Chapter 11 Long-Term Assets

2. 11-2 Copyright  Houghton Mifflin Company. All rights reserved. 1.Identify the types of long-term assets and explain the management issues related to accounting for them. 2.Distinguish between capital and revenue expenditures, and account for the cost of property, plant, and equipment. 3.Define depreciation, state the factors that affect its computation, and show how to record it. LEARNING OBJECTIVES

3. 11-3 Copyright  Houghton Mifflin Company. All rights reserved. 4.Compute periodic depreciation under the (a) straight-line method, (b) production method, and (c) declining- balance method. 5.Account for disposal of depreciable assets not involving exchanges. 6.Account for the disposal of depreciable assets involving exchanges. LEARNING OBJECTIVES

4. 11-4 Copyright  Houghton Mifflin Company. All rights reserved. 7.Identify the issues related to accounting for natural resources and compute depletion. 8.Apply the matching rule to intangible assets, including research and development costs and goodwill. 9.Apply depreciation methods to problems of partial years, revised rates, groups of similar items, special types of capital expenditures, and cost recovery. LEARNING OBJECTIVES

5. 11-5 Copyright  Houghton Mifflin Company. All rights reserved. OBJECTIVE 1 Identify the types of long- term assets and explain the management issues related to accounting for them. Management Issues Related to Accounting for Long-Term Assets

6. 11-6 Copyright  Houghton Mifflin Company. All rights reserved. Characteristics of Long-Term Assets  Support the operating cycle instead of being part of it.  Are reported at carrying (book) value.  Carrying value is the unexpired part of the cost of an asset. » Long-term assets » Long-term assets are assets that:

7. 11-7 Copyright  Houghton Mifflin Company. All rights reserved. Long-Term Assets as a Percentage of Total Assets for Selected Industries 22.6% 55.8% 24.2% 43.1% 35.3% 23.8% Advertising Agencies Interstate Trucking Auto and Home Supply Grocery Stores Pharma- ceuticals Tableware 0 10 20304050 60 Service Industries Merchandising Industries Manufacturing Industries

8. 11-8 Copyright  Houghton Mifflin Company. All rights reserved. Deciding to Acquire Long-Term Assets »A capital budgeting decision. »Decision is based on analyzing:  Future positive and negative cash flows.  The costs of training and maintenance.  The possibility that the expected savings may not occur.

9. 11-9 Copyright  Houghton Mifflin Company. All rights reserved. Deciding to Acquire Long-Term Assets »Information on acquisitions of long-term assets is found under investing activities in the statement of cash flows.

10. 11-10 Copyright  Houghton Mifflin Company. All rights reserved. Financing Long-Term Assets  Use cash flows from operations.  Take a long-term loan.  Take a short-term loan.  Issue common stock.  Issue long-term notes.  Issue bonds.  Lease instead of purchase. » Financing alternatives:

11. 11-11 Copyright  Houghton Mifflin Company. All rights reserved. Applying the Matching Rule to Long-Term Assets 1. How much of the total cost to allocate to expense in the current accounting period. 2. How much to retain on the balance sheet as an asset to benefit future periods. » Two important issues must be resolved.

12. 11-12 Copyright  Houghton Mifflin Company. All rights reserved. 1.How is the cost of the long-term asset determined? 2.How should the expired portion of the cost of the long-term asset be allocated against revenues over time? Questions about the Acquisition, Use, and Disposal of Each Long-Term Asset

13. 11-13 Copyright  Houghton Mifflin Company. All rights reserved. 3.How should subsequent expenditures, such as repairs and additions, be treated? 4.How should disposal of the long- term asset be recorded? Questions about the Acquisition, Use, and Disposal of Each Long-Term Asset

14. 11-14 Copyright  Houghton Mifflin Company. All rights reserved. Issues of Accounting for Long-Term Assets Acquisition Disposal Useful life or holding period of the long-term asset Decline in unexpired cost 1. Measurement of cost ACQUISITION 2. Allocation of expired cost to periods benefited 3. Accounting for subsequent expenditures, such as repairs, maintenance, and additions USEDISPOSAL 4. Recording of disposals ACCOUNTING ISSUES

15. 11-15 Copyright  Houghton Mifflin Company. All rights reserved. Discussion Q.What are the characteristics of long-term assets? A.Long-term assets have a useful life of more than one year, they are acquired for use in the operation of a business, and they are not intended for resale to customers.

16. 11-16 Copyright  Houghton Mifflin Company. All rights reserved. OBJECTIVE 2 Distinguish between capital and revenue expenditures, and account for the cost of property, plant, and equipment. Acquisition Cost of Property, Plant, and Equipment

17. 11-17 Copyright  Houghton Mifflin Company. All rights reserved. »An expenditure is a payment or an obligation to make future payment for an asset or a service. »A capital expenditure is made for the purchase or expansion of a long-term asset. »A revenue expenditure is related to the repair, maintenance, and operation of a long-term asset. Expenditures

18. 11-18 Copyright  Houghton Mifflin Company. All rights reserved. »Careful distinction between revenue and capital expenditures is important to the proper application of the matching rule.  Understatements and overstatements of income can occur. »Determining when a payment is an expense and when it is an asset is a matter of management judgment. Expenditures

19. 11-19 Copyright  Houghton Mifflin Company. All rights reserved. »Purchase price. »Commissions to real estate agents. »Lawyers’ fees. »Accrued taxes paid by the purchaser. »Draining. Costs of Land

20. 11-20 Copyright  Houghton Mifflin Company. All rights reserved. »Tearing down old building(s). »Clearing and grading. »Assessments for improvements. »Landscaping. »Land is not subject to depreciation. Costs of Land

21. 11-21 Copyright  Houghton Mifflin Company. All rights reserved. »Include driveways, parking lots, and fences. »Have limited lives and are depreciated. »Should be recorded in an account called Land Improvements rather than in the Land account. Costs of Land Improvements

22. 11-22 Copyright  Houghton Mifflin Company. All rights reserved. »Purchase price. »Repairs and other expenses required to put it in usable condition. »Buildings are subject to depreciation because they have a limited useful life. »When a business constructs its own building, all costs of construction are included. Costs of Buildings

23. 11-23 Copyright  Houghton Mifflin Company. All rights reserved. »Purchase price. »Other expenditures required to prepare it for use. »Equipment is subject to depreciation. Costs of Equipment

24. 11-24 Copyright  Houghton Mifflin Company. All rights reserved. »Is a lump sum purchase of land and other assets. »Requires apportionment of the purchase price to Land and other asset accounts. »Land must have a separate ledger account because it is nondepreciable. Costs of Group Purchases

25. 11-25 Copyright  Houghton Mifflin Company. All rights reserved. Appraisal Percentage Apportionment Appraisal Percentage Apportionment Land$ 10,000 10$ 8,500 Land$ 10,000 10$ 8,500 Building 90,000 90 76,500 Building 90,000 90 76,500 Totals$100,000 100$85,000 Totals$100,000 100$85,000 Costs of Group Purchases

26. 11-26 Copyright  Houghton Mifflin Company. All rights reserved. Discussion Q.Dyeing a carpet may make it look almost new. Why isn’t it a capital expenditure? A.Although the carpet looks better, its fibers are not stronger, and it probably will not last significantly longer than it would have before the color was changed.

27. 11-27 Copyright  Houghton Mifflin Company. All rights reserved. OBJECTIVE 3 Define depreciation, state the factors that affect its computation, and show how to record it. Accounting for Depreciation

28. 11-28 Copyright  Houghton Mifflin Company. All rights reserved. Definition of Depreciation »Depreciation accounting is described by the AICPA as:... a system of accounting which aims to distribute the cost or other basic value of tangible capital assets, less salvage (if any), over the estimated useful life of the unit... in a systematic and rational manner. It is a process of allocation, not of valuation.

29. 11-29 Copyright  Houghton Mifflin Company. All rights reserved. Features of Depreciation »All tangible assets except land have a limited useful life. »Depreciation means the allocation of the cost of a plant asset to the periods that benefit from the service of that asset. »Depreciation is not a process of valuation.

30. 11-30 Copyright  Houghton Mifflin Company. All rights reserved. Four Factors That Affect the Computation of Depreciation 1.Cost.  Net purchase price.  All reasonable and necessary expenditures to get the asset in place and ready for use. 2.Residual value (salvage or disposal value).  An asset’s estimated net scrap, salvage, or trade-in value as of the estimated date of disposal.

31. 11-31 Copyright  Houghton Mifflin Company. All rights reserved. Four Factors That Affect the Computation of Depreciation 3. Depreciable cost.  Cost less residual value.  Depreciable cost is allocated over the useful life of an asset. 4. Estimated useful life.  Total number of service units expected from a long-term asset.  May be measured in years, miles, units, or similar measures.

32. 11-32 Copyright  Houghton Mifflin Company. All rights reserved. »Depreciation is recorded at the end of the accounting period by an adjusting entry in the following form: Depreciation Expense, Asset Name xxx Accumulated Depreciation, Asset Namexxx Accumulated Depreciation, Asset Namexxx To record depreciation for the period To record depreciation for the period Accounting for Depreciation

33. 11-33 Copyright  Houghton Mifflin Company. All rights reserved. Discussion Q.A company purchased a building five years ago. The market value of the building is now greater than it was when the building was purchased. Explain why the company should continue depreciating the building. A.The company should continue depreciating the building because depreciation is an allocation of cost and not a valuation process.

34. 11-34 Copyright  Houghton Mifflin Company. All rights reserved. OBJECTIVE 4a Compute periodic depreciation under the straight-line method. Methods of Computing Depreciation

35. 11-35 Copyright  Houghton Mifflin Company. All rights reserved. »This method spreads the depreciable costs evenly over the asset’s estimated useful life. »Annual depreciation is computed as follows: Straight-Line Method = $1,800= Cost - Residual Value $10,000 - $1,000 Estimated Useful Life 5 years

36. 11-36 Copyright  Houghton Mifflin Company. All rights reserved. Depreciation Schedule, Straight-Line Method

37. 11-37 Copyright  Houghton Mifflin Company. All rights reserved. OBJECTIVE 4b Compute periodic depreciation under the production method. Methods of Computing Depreciation

38. 11-38 Copyright  Houghton Mifflin Company. All rights reserved. »This method is based on the assumption that depreciation is solely the result of use and that the passage of time plays no role in the depreciation process. »Annual depreciation is computed as follows: Units of Production Method = $.10/mile= Cost - Residual Value $10,000 - $1,000 Estimated Units 90,000 miles of Useful Life

39. 11-39 Copyright  Houghton Mifflin Company. All rights reserved. Depreciation Schedule, Production Method

40. 11-40 Copyright  Houghton Mifflin Company. All rights reserved. OBJECTIVE 4c Compute periodic depreciation under the declining-balance method. Methods of Computing Depreciation

41. 11-41 Copyright  Houghton Mifflin Company. All rights reserved. Declining-Balance Method »Results in relatively large amounts of depreciation in the early years of an asset’s life and smaller amounts in later years. »Is an accelerated method. »Assumes that plant assets are most efficient when new. »Is consistent with the matching rule.

42. 11-42 Copyright  Houghton Mifflin Company. All rights reserved. Computation of Declining-Balance Method »Annual depreciation is computed as follows: Number of years = Depreciation Rate (DR) 5 year asset = 20% per year DR x Carrying Value (CV) = Depreciation Expense CV = Cost - Accumulated Depreciation

43. 11-43 Copyright  Houghton Mifflin Company. All rights reserved. Depreciation Schedule, Double-Declining-Balance Method

44. 11-44 Copyright  Houghton Mifflin Company. All rights reserved. Depreciation Methods Used by 600 Large Companies Percentage of Companies Using Method Straight-line Production Accelerated method 0102030405060708090100 96% 15% 7% Depreciation Method

45. 11-45 Copyright  Houghton Mifflin Company. All rights reserved. Discussion Q.Contrast the assumptions underlying the straight-line depreciation method with the assumptions underlying the production depreciation method. A.The straight-line method assumes that depreciation is associated with the passage of time, whereas the production method assumes that depreciation is associated with use.

46. 11-46 Copyright  Houghton Mifflin Company. All rights reserved. OBJECTIVE 5 Account for the disposal of depreciable assets not involving exchanges. Disposal of Depreciable Assets

47. 11-47 Copyright  Houghton Mifflin Company. All rights reserved. Depreciation for Partial Year »It is necessary to record depreciation expense for the partial year up to the date of disposal. Sept. 30 Depreciation Expense, Machinery 450 Accumulated Depreciation, Machinery 450 Accumulated Depreciation, Machinery 450 To record depreciation up to date of disposal $6,500 - $500 / 10 x 9/12 = $450

48. 11-48 Copyright  Houghton Mifflin Company. All rights reserved. Discarded Plant Assets Sept. 30 Accumulated Depreciation, Machinery 4,650 Sept. 30 Accumulated Depreciation, Machinery 4,650 Loss on Disposal of Machinery 1,850 Loss on Disposal of Machinery 1,850 Machinery 6,500 Machinery 6,500 Discarded machine no longer used in the business Discarded machine no longer used in the business

49. 11-49 Copyright  Houghton Mifflin Company. All rights reserved. Plant Assets Sold for Cash: No Gain or Loss Sept. 30 Cash1,850 Sept. 30 Cash1,850 Accumulated Depreciation, Machinery4,650 Accumulated Depreciation, Machinery4,650 Machinery 6,500 Machinery 6,500 Sale of machine for carrying value, no gain or loss Sale of machine for carrying value, no gain or loss

50. 11-50 Copyright  Houghton Mifflin Company. All rights reserved. Plant Assets Sold for Cash: Loss Recorded Sept. 30 Cash1,000 Sept. 30 Cash1,000 Accumulated Depreciation, Machinery 4,650 Accumulated Depreciation, Machinery 4,650 Loss on Sale of Machinery 850 Loss on Sale of Machinery 850 Machinery 6,500 Machinery 6,500 Sale of machine at less than carrying value; loss of $850 ($1,850 - $1,000) recorded Sale of machine at less than carrying value; loss of $850 ($1,850 - $1,000) recorded

51. 11-51 Copyright  Houghton Mifflin Company. All rights reserved. Plant Assets Sold for Cash: Gain Recorded Sept. 30 Cash2,000 Accumulated Depreciation, Machinery4,650 Accumulated Depreciation, Machinery4,650 Gain on Sale of Machinery 150 Gain on Sale of Machinery 150 Machinery 6,500 Machinery 6,500 Sale of machine at more than carrying value; gain of $150 ($2,000 - $1,850) recorded Sale of machine at more than carrying value; gain of $150 ($2,000 - $1,850) recorded

52. 11-52 Copyright  Houghton Mifflin Company. All rights reserved. Discussion Q.If a plant asset is discarded before the end of its useful life, how is the amount of loss measured? A.If a plant asset is discarded before the end of its useful life, the amount of loss is equal to its carrying value (cost less accumulated depreciation).

53. 11-53 Copyright  Houghton Mifflin Company. All rights reserved. OBJECTIVE 6 Account for the disposal of depreciable assets involving exchanges. Exchanges of Plant Assets

54. 11-54 Copyright  Houghton Mifflin Company. All rights reserved. Recognizing Gains and Losses on Exchanges Of dissimilar assets Yes Yes Of dissimilar assets Yes Yes Of similar assets Yes No Of similar assets Yes No For income tax purposes Of dissimilar assets Yes Yes Of dissimilar assets Yes Yes Of similar assets No No Of similar assets No No Losses Gains Exchange Recognized Recognized For financial accounting purposes

55. 11-55 Copyright  Houghton Mifflin Company. All rights reserved. Discussion Q.Are gains on similar assets completely unrecognized? A.No. Since the basis of the new asset is reduced by the unrecognized gain, there will be less depreciation expense over the life of the new asset.

56. 11-56 Copyright  Houghton Mifflin Company. All rights reserved. OBJECTIVE 7 Identify the issues related to accounting for natural resources and compute depletion. Accounting for Natural Resources

57. 11-57 Copyright  Houghton Mifflin Company. All rights reserved. Accounting for Natural Assets »Natural resources are shown on the balance sheet as long-term assets. »These assets are converted into inventory by cutting, pumping, or mining. »They are recorded at acquisition cost. »As the asset is converted to inventory, the asset account must be proportionally reduced.

58. 11-58 Copyright  Houghton Mifflin Company. All rights reserved. Depletion »Depletion is used to describe not only the exhaustion of a natural resource but also the proportional allocation of the cost of a natural resource to the units extracted. »Costs are allocated much like the production method of depreciation.

59. 11-59 Copyright  Houghton Mifflin Company. All rights reserved. Depletion Dec. 31 Depletion Expense, Coal Deposits 115,000 Accumulated Depletion, Coal Deposits115,000 Accumulated Depletion, Coal Deposits115,000 To record depletion of coal mine: $1 per ton for 115,000 tons mined and sold

60. 11-60 Copyright  Houghton Mifflin Company. All rights reserved. Depreciation of Closely Related Plant Assets »Closely related plant assets are those assets necessary to extract the resource. »If the life of the asset is longer than the life of the resource, it is depreciated on the same basis as the depletion is computed. »If the life of the asset is shorter than the life of the resource, it is depreciated over a shorter life.

61. 11-61 Copyright  Houghton Mifflin Company. All rights reserved. Development and Exploration Costs in the Oil and Gas Industry »Successful efforts accounting.  Cost recorded as an asset and depleted over the estimated life of the resource.  For an unsuccessful exploration, write off immediately as a loss.  More conservative method.

62. 11-62 Copyright  Houghton Mifflin Company. All rights reserved. Development and Exploration Costs in the Oil and Gas Industry »Full-costing method.  All costs are recorded as assets and depleted over the estimated life of the producing resources.  Improves earnings performance in the early years. »Either method is GAAP.

63. 11-63 Copyright  Houghton Mifflin Company. All rights reserved. Discussion Q.Under what circumstances can a mining company depreciate its plant assets over a period of time that is less than their useful lives? A.A mining company may depreciate its plant assets over a period of time that is less than their useful lives when the plant assets are so closely associated with the natural resource that they cannot be used after the resource is depleted and the depletion period is shorter than the useful lives of the assets.

64. 11-64 Copyright  Houghton Mifflin Company. All rights reserved. OBJECTIVE 8 Apply the matching rule to intangible assets, including research and development costs and goodwill. Accounting for Intangible Assets

65. 11-65 Copyright  Houghton Mifflin Company. All rights reserved. Intangible Assets »Intangible assets are long term but have no physical substance. »Value comes from the long-term rights or advantages that it offers to its owners. »Intangible assets include patents, copyrights, leaseholds, leasehold improvements, trademarks and brand names, franchises, licenses, and goodwill. »They are accounted for at acquisition cost.

66. 11-66 Copyright  Houghton Mifflin Company. All rights reserved. Intangible Assets »Goodwill and trademarks should not appear on the balance sheet unless they have been purchased from another party at a price established in the marketplace.

67. 11-67 Copyright  Houghton Mifflin Company. All rights reserved. Accounting Issues for Intangible Assets »Accounting issues are similar to other long- term assets. APB Opinion #17 lists them as follows:  Determining an initial carrying amount.  Accounting for periodic write-off or amortization.  Accounting for that amount if the value declines substantially and permanently. »Because of its intangibility, its value and useful life may be quite hard to estimate.

68. 11-68 Copyright  Houghton Mifflin Company. All rights reserved. Related Journal Entries for Intangible Assets Patent18,000 Cash 18,000 Cash 18,000 Purchase of patent Amortization Expense 3,000 Patent 3,000 Patent 3,000 Annual amortization $18,000 / 6 years = $3,000 Loss on Patent15,000 Patent 15,000 Patent 15,000 Loss resulting from patent’s becoming worthless

69. 11-69 Copyright  Houghton Mifflin Company. All rights reserved. Research and Development Costs 1.R&D expenditures should be treated as revenue expenditures and charged to expense in the period when incurred. 2.Costs of R&D are continuous and necessary for the success of a business and should be treated as current expenses. 3.R&D costs do not necessarily result in future benefits (assets). » The FASB has stated that:

70. 11-70 Copyright  Houghton Mifflin Company. All rights reserved. Computer Software Costs »Costs incurred in creating computer software are considered R&D until the product has been proved to be technologically feasible. »Costs incurred up to this point are expensed as incurred.

71. 11-71 Copyright  Houghton Mifflin Company. All rights reserved. Computer Software Costs »After the working program has been developed, all software production costs are recorded as assets and amortized over the estimated economic life of the product using the straight-line method. »Software developed for internal use by a company may be amortized over its estimated useful life.

72. 11-72 Copyright  Houghton Mifflin Company. All rights reserved. Goodwill »Goodwill exists when a purchaser pays more for a business than the fair market value of the net assets if purchased separately. »The payment above and beyond the fair market value is recorded in the Goodwill account.

73. 11-73 Copyright  Houghton Mifflin Company. All rights reserved. Goodwill »APB #17 states that goodwill should be amortized over a reasonable number of future periods, but not longer than 40 years. »Goodwill should not be recorded unless it is paid for in connection with the purchase of a whole business. »Amount = Purchase price - FMV of identifiable assets.

74. 11-74 Copyright  Houghton Mifflin Company. All rights reserved. Discussion Q.Why would a company spend thousands of dollars on goodwill? A.The company is paying for anticipated superior earnings and probably feels it will more than recoup the goodwill purchased.

75. 11-75 Copyright  Houghton Mifflin Company. All rights reserved. OBJECTIVE 9 Apply depreciation methods to problems of partial years, revised rates, groups of similar items, special types of capital expenditures, and cost recovery. Special Problems of Depreciating Plant Assets

76. 11-76 Copyright  Houghton Mifflin Company. All rights reserved. Depreciation for Partial Years »Assume an asset is purchased on September 5 and the yearly accounting period ends on December 31. Cost - Scrap Life in Years Number of Months 12 x $3,600 - $600 6 years x = $167 4 12

77. 11-77 Copyright  Houghton Mifflin Company. All rights reserved. Revision of Depreciation Rates »Revision is made when it is determined that an asset will last for a longer or shorter period than originally thought. »The remaining depreciable cost of the asset is spread over the remaining years of useful life. »Depreciation expense is increased or decreased to reflect the asset’s changed life.

78. 11-78 Copyright  Houghton Mifflin Company. All rights reserved. Example Computation of Revised Depreciation Rates Cost $7,000 (Depreciation Already Taken) (2,000) (Residual Value) (1,000) Remaining Depreciable Amount $4,000 Divide by remaining useful life 2 yrs. Dec. 31 Dep. Exp., Delivery Truck 2,000 Accum. Dep., Delivery Truck 2,000 Accum. Dep., Delivery Truck 2,000 To record expense for the year To record expense for the year

79. 11-79 Copyright  Houghton Mifflin Company. All rights reserved. Group Depreciation »Group depreciation is widely used when like assets are grouped and depreciated together. »This approach is convenient and includes assets such as trucks and office equipment.

80. 11-80 Copyright  Houghton Mifflin Company. All rights reserved. Special Types of Capital Expenditures »An addition is an enlargement of the physical layout of a plant asset.  The amount is debited to the asset account. »A betterment is an improvement that does not add to the physical layout of a plant asset.  The cost is charged to the asset account.

81. 11-81 Copyright  Houghton Mifflin Company. All rights reserved. Special Types of Capital Expenditures »Ordinary repairs are expenditures necessary to keep an asset in good operating condition.  Such repairs are a current expense. »Extraordinary repairs are repairs of a more significant nature that affect the estimated residual value or estimated useful life of an asset.  Recorded by debiting the Accumulated Depreciation account.

82. 11-82 Copyright  Houghton Mifflin Company. All rights reserved. »Modified Accelerated Cost Recovery System (MACRS) discards the concepts of estimated useful life and residual value. Modified Accelerated Cost Recovery System

83. 11-83 Copyright  Houghton Mifflin Company. All rights reserved. »MACRS requires that a cost recovery allowance be computed:  On the unadjusted cost of property being recovered.  Over a period of years prescribed by the law for all property of similar types. Modified Accelerated Cost Recovery System

84. 11-84 Copyright  Houghton Mifflin Company. All rights reserved. Cost Recovery for Federal Income Tax Purposes »Congress hoped to encourage businesses to invest in new plant and equipment by allowing them to write off assets rapidly. »Tax methods of depreciation are not usually acceptable for financial reporting under GAAP.

85. 11-85 Copyright  Houghton Mifflin Company. All rights reserved. Discussion Q.What will be the effect on future years’ income of charging an addition to a building to repair expense? A.If an addition to a building is charged to repair expense, future years’ income will be overstated and the current year’s income will be understated.

86. 11-86 Copyright  Houghton Mifflin Company. All rights reserved. 1.Identify the types of long-term assets and explain the management issues related to accounting for them. 2.Distinguish between capital and revenue expenditures, and account for the cost of property, plant, and equipment. depreciation, 3.Define depreciation, state the factors that affect its computation, and show how to record it. OK, LET’S REVIEW...

87. 11-87 Copyright  Houghton Mifflin Company. All rights reserved. 4.Compute periodic depreciation under the (a) straight-line method, (b) production method, and (c) declining- balance method. 5.Account for disposal of depreciable assets not involving exchanges. 6.Account for the disposal of depreciable assets involving exchanges. CONTINUING OUR REVIEW...

88. 11-88 Copyright  Houghton Mifflin Company. All rights reserved. 7.Identify the issues related to accounting for natural resources and compute depletion. 8.Apply the matching rule to intangible assets, including research and development costs and goodwill. 9.Apply depreciation methods to problems of partial years, revised rates, groups of similar items, special types of capital expenditures, and cost recovery. AND FINALLY...