Chapter 08 - Reporting and Interpreting Property, Plant, and Equipment; Natural Resources; and Intangibles
Chapter 08
Student Name: Bytullah Karar
Class: MFA 6 2023
Reporting and Interpreting Property, Plant, and Equipment;
Natural Resources; and Intangibles
Learning Objectives and Related Assignment Materials
MiniExercises
Exercises
Alternate Cases and
Problems Problems Projects
1. Define, classify, and explain the nature
of long-lived productive assets and
interpret the fixed asset turnover ratio.
2. Apply the cost principle to measure
the acquisition and maintenance of
property, plant, and equipment.
3. Apply various cost allocation methods
as assets are held and used over time.
1, 2
1, 2, 20
1, 4, 5
1, 4
3
3, 4, 5, 6,
20, 22
1, 2, 3, 8
1, 2, 3, 6
1, 4, 5, 6
2, 3, 4, 5,
6, 8, 9,
10, 11
2, 3, 4, 5,
6, 7
3, 5, 11
4. Explain the effect of asset impairment
on the financial statements.
5. Analyze the disposal of property,
plant, and equipment.
7
3, 4, 5, 6,
7, 8, 9,
10, 11,
15, 20,
21, 22,
23
12, 20
10
7
1, 11
6, 7
5
7
6. Apply measurement and reporting
concepts for natural resources
and intangible assets.
7. Explain the impact on cash flows of
acquiring, using, and disposing of
long-lived assets.
Chapter Supplement A: Changes in
depreciation estimates
1, 9
12, 13,
14, 15,
20
16, 17,
18, 19,
20
11, 20,
23
8, 9, 10
6, 7
1, 2, 6,
11
21, 23
11
Learning Objectives
8
10
7
This chapter also includes a Comprehensive Problem, which covers chapters 6, 7, and 8.
HANDOUT 8 – 1 SOLUTION
DEPRECIATION METHODS AND GAIN/LOSS ON SALE
8-1
1, 2, 3, 6,
7, 9, 10,
11
1, 2, 8, 9,
10, 11
6, 7, 10,
11
Chapter 08 - Reporting and Interpreting Property, Plant, and Equipment; Natural Resources; and Intangibles
Joel Harvey Florists acquired a truck on January 1, 2007. The company paid $11,000 for the truck, $500
for destination charges, and $250 to paint the company name on the side of the truck. The company’s
accounting manager estimates the truck to have a five-year useful life and a residual value of $1,750. The
truck is expected to be driven 100,000 miles in five years. It is actually driven 15,000 miles in 2007, 25,000
miles in 2008, 30,000 miles in 2009, 25,000 miles in 2010, and 5,000 miles in 2011.
Part 1
On January 1, 2007, how much should Joel Harvey Florist capitalize for the cost of the truck?
11,000 + 500 + 250 = $11,750.
Part 2
How much depreciation expenses that would be recorded for the years 2007 through 2011 using each of
the following methods?
a. Straight-line
(11,750 – 1,750) ÷ 5 = $2,000 per year
b. Unit-of-production
(11,750 – 1,750) ÷ 100,000 = 10 cents/mile
2005: 15,000 x 0.10 = $1,500;
2006: 25,000 x 0.10 = $2,500;
2007: 30,000 x 0.10 = $3,000;
2008: 25,000 x 0.10 = $2,500;
2009: 5,000 x 0.10 = $500.
c. Declining-balance
8-2
Chapter 08 - Reporting and Interpreting Property, Plant, and Equipment; Natural Resources; and Intangibles
Year
Computation
Depreciation
Expense
Accumulated
Net Book Value
Depreciation
Acquisition
11,750
2007
11,750 x 2/5
$4,700
$4,700
7,050
2008
7,050 x 2/5
2,820
7,520
4,230
2009
4,230 x 2/5
1,692
9,212
2,538
2010
2,538 x 2/5
2,538 – 1,750
788 1,015
10,000 10,227
1,750 1,448
2011
1,448 x 2/5
0 579
0 10,806
1,750 944
Part 3
On December 31, 2011, Joel Harvey sold the truck for $3,000 cash. Compute the gain or loss on sale.
$3,000 - $1,750 = $1,250 gain
8-3
Chapter 08 - Reporting and Interpreting Property, Plant, and Equipment; Natural Resources; and Intangibles
HANDOUT 8 – 2
COMPARISON OF DEPRECIATION EXPENSE AND NET BOOK VALUE
Depreciation Expense
$5,000
$4,700
$4,500
$4,000
$3,500
$3,000
$2,820
$2,500
$2,500
$2,000
$1,500
$2,000
$2,000
$3,000
$2,500
$2,000
$2,000
$1,692
$1,500
$1,000
Straight-line
$2,000
Units-ofproduction
$788
$500
$500
$0
$0
2007
2008
2009
2010
2011
Doubledeclining
balance
Net Book Value
$14,000
$12,000
$10,000
$11,750
Straight-line
$10,250
$9,750
$8,000
$7,750
Units-ofproduction
$7,050
$6,000
$4,000
$2,000
$5,750
$4,230
$4,750
$3,750
$2,538
$2,250
$1,750
$1,750
$0
Pre- 2007 2008 2009 2010 2011
2007
8-4
Doubledeclining
balance