ACCT 200 1st Edition Outline of Last Lecture I. Homework 6-14II. Homework 6-15III. Homework 6-16IV. Homework 9-10V. Homework 9-11Outline of Current Lecture I. ExpendituresII. Expenditures TableIII. Recording an assetIV. CapitalizationV. Land or Land Improvement?VI. DepreciationCurrent LectureI. Expendituresa. Expenditures can be recorded as assets OR expensesb. “capitalize”= “make it an asset”c. Assets on Balance Sheeti. Currentii. Long term1. Fixed (PPE)—property, plant, equipment2. InvestmentThese notes represent a detailed interpretation of the professor’s lecture. GradeBuddy is best used as a supplement to your own notes, not as a substitute.3. Intangiblecan’t touch them (i.e. trademarks, patents, copyrights)d. Expense on Balance Sheeti. Also known as “revenue expenditures”e. **if we don’t record expenses, net income will be overstatedthat’s why we need to know how to record this stuff. *land is a tangible, fixed asset (not depreciable because it will never be used up)II. Expenditures TableFixed Investment IntangiblePhysical substance Yes Yes/no NoHeld for resale No Yes NoUsed for productive purposesYes No YesUsed to generate operating revenueYes No yesIII. Recording an asseta. Date of acquisitioni. What is the asset’s cost? Record the assets at historical cost, NOT current market value.b. Over Asset’s Lifei. How do we report subsequent expenditures related to the asset? Record it as expense or as an asset (capitalize it)>ii. What about annual depreciation expense? This is the using up of a company’s fixed assets. NO CASH involved.iii. Accumulated Depreciation? This is a contra asset.iv. Book Value? Net book value = historical cost – accumulated depreciation1. Net book value is how much the company has left to usec. At Disposal of Asseti. Gain or loss?1. Gain when selling price is greater than net book value—like revenues (increases retained earnings and owner’s equity)2. Loss when selling price is less than the net book value—like expenses (decreases retained earnings and owner’s equity)IV. Capitalizationa. Capitalized asset cost—all expenditures needed to acquire an asset and put it to its intended useb. *don’t capitalize as assets the costs of repairing damage, fines, etc.c. purchase pricecapitalizesales taxcapitalizefreight costscapitalize (pay cash)insurancecapitalizeinstallation/testingcapitalizedamage repairexpensedi. did the repair improve the piece of equipment of just return it to its original state? If no new value is added, the cost is expensed.d. Capitalize on balance sheet if:i. Cost improves assetii. Cost extends asset’s useful life (like some extraordinary repair)e. Expense on income statement if:i. Cost maintains assetii. Cost is ordinary repairV. Land or Land Improvement?a. Land—never gets depreciated because it cannot be used upb. Land improvements—will eventually be used up and have to be redone—they will break down at some pointc. Buildings—get used up and are depreciatedVI. Depreciation—recorded for fixed assets lasting longer than one yeara. Recorded as increased depreciation expense (income statement) and increase accumulated depreciation (balance sheet)b. Depreciable cost = historical cost – residual valuei. Depreciable cost is the total amount of depreciation that can be recorded over an asset’s useful lifec. Residual value—leftover valuenever depreciate below residual valued. Book Value = historical cost – accumulated depreciationi. Book value is an estimate of how much of an asset the company has left to usee. Straight line depreciation—an asset depreciates the same amount every full yeari. Annual Depreciation = (historical cost – residual value) x (1/useful life)f. Double Declining Balance Depreciationi. Annual Depreciation = (historical cost – residual value) x (2/useful