LVC BACC 200 - Plant Assets, Natural Resources and Intangibles 1

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Slide 1Plant assetsCost of plant assetsSlide 4Slide 5ExerciseSlide 7ExerciseSlide 9ExerciseSlide 11Financial Accounting- BACC200School of BusinessDepartment of AccountingBACC200 - Chapter 10Plant Assets, Natural Resources and IntangiblesChapter 10|Part 1PLANT ASSETS Plant Assets Characteristics:Used in the operationsNot intended for saleLong lifeTangiblePlant Assets Categories:LandLand ImprovementsBuildingEquipmentCOST OF PLANT ASSETSDate Account Title and Explanation Ref Debit Credit$ Plant Asset $ X $$ Cash or Payable $ $ XDr Cr + -Normal BalancePlant AssetCostCost•Plant assets are recorded according to the cost principle, which means that assets are recorded at their original cost and at the time of acquiring.•The cost consists of all expenditures necessary to acquire the asset and make it ready for use. •Plant assets' normal balance is DEBIT (they increase by debit and decrease by credit).Plant Assets CategoriesIncluded in the CostLand- Cash purchase price- Closing costs (title and attorney's fees)- Broker's commission- Accrued property taxes- Clearing, draining, filling and grading of an empty land.- If land has building that must be removed: Add: demolition and removal costsDeduct: proceeds from selling salvaged materialsLand Improvements-Parking lots- Underground sprinklers- Driveways- Sidewalks- Fences- Landscaping- LightingPlant Assets CategoriesIncluded in the CostBuildingBuilding Purchased:- Purchase price- Closing costs- Broker's commission- Remodeling and repair costsBuilding Constructed:- Contractor's fees- Construction materials costs- Architect's fees- Building permits- Excavation costs- Interest payments during construction periodEquipment- Purchase price- Sales taxes- Freight charges- Insurance during transit- Expenditures for assembling, installing and testingEXERCISEDesign-Me purchased a land from Bina Real Estate on February 1, 2017.Instructions: Put an “X” in the appropriate box to indicate whether the items are considered as land or land improvements; then prepare the appropriate journal entries.Item Land Land ImprovementsAccrued property taxes $2,250 $X $Attorney’s fees $3,750 $X $Cash purchase price $39,000 $X $Demolition costs of worn-out warehouse $7,000 $X $Driveway $3,700 $ X$Fences $6,000 $ $XIncome from selling salvaged materials $2,000 X$ $Landscaping $10,000 $ X$Parking lot $6,500 $ $XSidewalks $4,000 $ $XUnderground sprinklers $2,300 $ $XDate Account Title and Explanation Ref Debit CreditFeb 1, 20176$LandCash$50,000$50,000$6Feb 1, 2017$Land ImprovementCash$32,500$32,500$EXERCISEDesign-Me is constructing a building on the land purchased from Butna Real Estate on February 1, 2017.Instructions: Put an “X” in the appropriate box to indicate whether the items are included or not included in the cost of the building; then prepare all the necessary journal entries, assuming that the building was constructed on March 31 and all costs were paid in cash.Item Included Not IncludedArchitect fees $20,000 X$ $Building permit $10,000 $X $Construction material $80,000 $X $Contractors’ fees $40,000 $X $Demolition costs of worn-out warehouse $7,000 $ X$Interest payments after finishing construction $5,000.$ X$Painting the logo on the building $7,500. $ $XDate Account Title and Explanation Ref Debit Credit6March 31, 2017 $BuildingCash$150,000$ 150,000$6March 31, 2017 $LandCash$7,000$7,000$6March 31, 2017 $Interest ExpenseCash$5,000$5,000$6March 31, 2017 $Painting ExpenseCash$7,500$7,500$EXERCISEDesign-Me purchases a truck on January 1. Instructions: Put an “X” in the appropriate box to indicate whether the items are included or not included in the cost of the truck; then prepare all the necessary journal entries, assuming all costs were paid in cash.Item Included Not IncludedAccident Insurance for the first year $4,000 $ $XCash purchase price including taxes $14,000 X$ $Freight charges $2,000 $X $Freight Insurance during transit $500 $X $Heavy vehicles driving license $2,350 $ X$Testing fees $1,500. X$ $Date Account Title and Explanation Ref Debit Credit6Jan 1, 2017$EquipmentCash$18,000$18,000$6Jan 1, 2017$Prepaid InsuranceCash$4,000$4,000$6Jan 1, 2017$License


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LVC BACC 200 - Plant Assets, Natural Resources and Intangibles 1

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