lesson 8-1
DESCRIPTION
LESSON 8-1. Buying Plant Assets. TERMS REVIEW. page 228. plant asset record real property personal property assessed value. PLANT ASSET RECORD. page 225. 1. 2. 3. 1.Complete when asset is purchased. 2.Complete when asset is disposed of. - PowerPoint PPT PresentationTRANSCRIPT
CENTURY 21 ACCOUNTING © 2009 South-Western, Cengage Learning
LESSON 8-1LESSON 8-1
Buying Plant Assets
CENTURY 21 ACCOUNTING © 2009 South-Western, Cengage Learning
2
LESSON 8-1
TERMS REVIEWTERMS REVIEW
plant asset record real property personal property assessed value
page 228
CENTURY 21 ACCOUNTING © 2009 South-Western, Cengage Learning
3
LESSON 8-1
1. Complete when asset is purchased.
2. Complete when asset is disposed of.
3. Complete each year to record annual depreciation expense.
PLANT ASSET RECORDPLANT ASSET RECORD page 225
11
22
33
CENTURY 21 ACCOUNTING © 2009 South-Western, Cengage Learning
4
LESSON 8-1
BUYING A PLANT ASSET FOR CASHBUYING A PLANT ASSET FOR CASH page 226
January 2. Paid cash for new copying machine, $1,680.00. Check No. 62.
CENTURY 21 ACCOUNTING © 2009 South-Western, Cengage Learning
5
LESSON 8-1
BUYING A PLANT ASSET ON ACCOUNTBUYING A PLANT ASSET ON ACCOUNT page 226
January 2. Bought an office computer on account from Discount Computers, $3,300.00. Memorandum No. 70.
CENTURY 21 ACCOUNTING © 2009 South-Western, Cengage Learning
6
LESSON 8-1
CALCULATING AND PAYING CALCULATING AND PAYING PROPERTY TAXPROPERTY TAX page 227
Feb 1. Paid cash for property tax, $3,250.00. Check No. 122.
AnnualProperty Tax
=Tax Rate
Assessed Value
$65,000.00 5% = $3,250.00
CENTURY 21 ACCOUNTING © 2009 South-Western, Cengage Learning
LESSON 8-2LESSON 8-2
Calculating and Journalizing Depreciation Expense
CENTURY 21 ACCOUNTING © 2009 South-Western, Cengage Learning
8
LESSON 8-2
TERMS REVIEWTERMS REVIEW
straight-line method of depreciation book value of a plant asset
page 234
CENTURY 21 ACCOUNTING © 2009 South-Western, Cengage Learning
9
LESSON 8-2
Ending Book Value
=Annual Depreciation
–Beginning Book Value
Year 3 $1,270.00 – $365.00 = $905.00
STRAIGHT-LINE DEPRECIATIONSTRAIGHT-LINE DEPRECIATION page 230
Original Cost $2,000.00– Estimated Salvage Value – 175.00= Estimated Total Depreciation Expense $1,825.00 Years of Estimated Useful Life 5= Annual Depreciation Expense $ 365.00
CENTURY 21 ACCOUNTING © 2009 South-Western, Cengage Learning
10
LESSON 8-2
RECORDING DEPRECIATION ON RECORDING DEPRECIATION ON PLANT ASSET RECORDSPLANT ASSET RECORDS
2. Calculate accumulated depreciation.3. Calculate ending book value.
1. Calculate annual depreciation expense.
page 231
11 22 33
CENTURY 21 ACCOUNTING © 2009 South-Western, Cengage Learning
11
LESSON 8-2
Depreciation Expense—Office Equipment
Jan. 1 Bal. 37,434.00Dec. 31 Adj. 11,571.00Dec. 31 Bal. 49,005.00
Accumulated Depreciation—Office Equipment
Dec. 31 Adj. 11,571.00
JOURNALIZING ANNUAL JOURNALIZING ANNUAL DEPRECIATION EXPENSEDEPRECIATION EXPENSE page 232
CENTURY 21 ACCOUNTING © 2009 South-Western, Cengage Learning
12
LESSON 8-2
CALCULATING DEPRECIATION CALCULATING DEPRECIATION EXPENSE FOR PART OF A YEAREXPENSE FOR PART OF A YEAR page 232
Annual Depreciation Expense $ 120.00
Months in a Year 12
Monthly Depreciation Expense $ 10.00
× Number of Months Asset Is Used × 5
Partial Year’s Depreciation Expense $ 50.00
CENTURY 21 ACCOUNTING © 2009 South-Western, Cengage Learning
LESSON 8-3LESSON 8-3
Disposing of Plant Assets
CENTURY 21 ACCOUNTING © 2009 South-Western, Cengage Learning
14
LESSON 8-3
1. Record entry to remove plant asset from accounts.
2. Write the date, amount, and type of disposal.
DISCARDING A PLANT ASSET DISCARDING A PLANT ASSET WITH NO BOOK VALUEWITH NO BOOK VALUE page 235
11
January 5, 20X6. Discarded storage cabinet: original cost, $275.00; total accumulated depreciation through December 31, 20X5, $275.00. Memorandum No. 72.
22
CENTURY 21 ACCOUNTING © 2009 South-Western, Cengage Learning
15
LESSON 8-3
June 30, 20X6. Discarded office table: original cost, $200.00; total accumulated depreciation through December 31, 20X5, $140.00; additional depreciation to be recorded through June 30, 20X6, $20.00. Memorandum No. 92.
1. Record a partial year’s depreciation expense.
2. Record the partial year’s depreciation.
4. Record entry to remove plant asset from accounts.
3. Write the date, amount, and type of disposal.
DISCARDING A PLANT ASSET DISCARDING A PLANT ASSET WITH A BOOK VALUEWITH A BOOK VALUE page 236
11
44
33
22
CENTURY 21 ACCOUNTING © 2009 South-Western, Cengage Learning
16
LESSON 8-3
3. Record entry to remove plant asset from accounts.
1. Compute the gain or loss on the sale.
2. Write the date, amount, and type of disposal.
SELLING A PLANT ASSETSELLING A PLANT ASSET page 267
11
22
33
January 4, 20X6. Received cash from sale of fax machine, $185.00: original cost, $600.00; total accumulated depreciation through December 31, 20X5, $400.00. Receipt No. 60.
CENTURY 21 ACCOUNTING © 2009 South-Western, Cengage Learning
17
LESSON 8-3
1. Compute the original cost of the new plant asset.
TRADING A PLANT ASSETTRADING A PLANT ASSET page 238
1144
June 27, 20X6. Paid cash, $850.00, plus old counter for new store counter: original cost of old counter, $1,000.00; total accumulated depreciation through June 27, 20X6, $765.00. Memorandum No. 130 and Check No. 154.
4. Record entry to remove old plant asset and add new plant asset.
2. Write the date and type of disposal and the disposal amount.
22
33
3. Complete section 1 for the new plant asset.
CENTURY 21 ACCOUNTING © 2009 South-Western, Cengage Learning
18
LESSON 8-3
3. Record entry to remove plant assets from accounts.
1. Compute the gain on sale of plant assets.
2. Write the date, type, and amount of disposal.
SELLING LAND AND BUILDINGSSELLING LAND AND BUILDINGS page 239
1133
January 2, 20X6. Fidelity Company sold land with a building for $97,000.00 cash; original cost of land, $25,000.00; original cost of building, $150,000.00; total accumulated depreciation on building through December 31, 20X5, $85,000.00. Receipt No. 105.
22
CENTURY 21 ACCOUNTING © 2009 South-Western, Cengage Learning
19
LESSON 8-3
CALCULATING THE GAIN ON SALE OF CALCULATING THE GAIN ON SALE OF LAND AND BUILDINGSLAND AND BUILDINGS page 240
CENTURY 21 ACCOUNTING © 2009 South-Western, Cengage Learning
TTERMS REVIEW – lesson 8-4ERMS REVIEW – lesson 8-4declining-balance method of depreciation –
Multiplying the book value at the end of each fiscal period by a constant depreciation rate – Used to depreciate more of the asset in the early years of its use – Salvage value is not used in calculating the annual depreciation expense
sum-of-the-years-digits method of depreciation – Using fractions based on the number of years of a plant asset’s useful life. Calculate by multiplying the total depreciation expense by the fraction for that year
Lesson 8-4, page 240Lesson 8-4, page 240
CENTURY 21 ACCOUNTING © 2009 South-Western, Cengage Learning
TTERMS REVIEW – Cont’dERMS REVIEW – Cont’dproduction-unit method of depreciation – Calculating estimated annual
depreciation expense based on the amount of production expected from a plant asset
Modified Accelerated Cost Recovery System – a depreciation method required by the IRS to be used for income tax calculation purposes for most plant assets placed in service after 1986 – classify assets as belonging to “5” and “7” year property classes; assume purchase half way through the year; calculate by multiplying original cost by the rate for that year (rates determined by IRS). Not a generally accepted depreciation method for financial reporting.
Depletion – decrease in value of a plant asset due to removal of a natural resource
Lesson 8-4, page 240Lesson 8-4, page 240
CENTURY 21 ACCOUNTING © 2009 South-Western, Cengage Learning
declining-balance method of depreciation – Multiplying the book value at the end of each fiscal period by a constant depreciation rate – Used to depreciate more of the asset in the early years of its use – Salvage value is not used in calculating the annual depreciation expense
CENTURY 21 ACCOUNTING © 2009 South-Western, Cengage Learning
DECLINING-BALANCE METHOD OF DEPRECIATIONDECLINING-BALANCE METHOD OF DEPRECIATIONDECLINING-BALANCE METHOD OF DEPRECIATIONDECLINING-BALANCE METHOD OF DEPRECIATION
Lesson 8-4, page 234Lesson 8-4, page 234
Plant asset: Computer Original cost: $2,000.00Depreciation method: Declining balance Estimated salvage value: $175.00
Estimated useful life: 5 years
Beginning Declining- Annual Ending Year Book Value Balance Rate Depreciation Book Value
1 $2,000.00 40% $ 800.00 $1,200.002 1,200.00 40% 480.00 720.003 720.00 40% 288.00 432.004 432.00 40% 172.80 259.205 259.20 40% 84.20 175.00
1. Calculate the declining-balance rate.
Total Depreciation Expense 100% Estimated Useful Life (years) 5= Straight-Line Rate 20% Double the Rate 2= Declining-Balance Rate 40%
1 2
2. Calculate the annual depreciation for year 3.
Beginning Book Value $720 Depreciation Rate 40%= Annual Depreciation Expense $288
Total ————Depreciation — $1,825.00 —
CENTURY 21 ACCOUNTING © 2009 South-Western, Cengage Learning
sum-of-the-years-digits method of depreciation – Using fractions based on the number of years of a plant asset’s useful life. Calculate by multiplying the total depreciation expense by the fraction for that year
CENTURY 21 ACCOUNTING © 2009 South-Western, Cengage Learning
Lesson 8-4, page 235Lesson 8-4, page 235
Plant asset: Computer Original cost: $2,000.00Depreciation method: Sum-of-the-years-digits Estimated salvage value: $175.00
Estimated useful life: 5 years
Beginning Total Annual Ending Year Book Value Fraction Depreciation Depreciation Book Value
1 $2,000.00 5/15 $1,825.00 $ 608.33 $1,391.672 1,391.67 4/15 $1,825.00 486.67 905.003 905.00 3/15 $1,825.00 365.00 540.004 540.00 2/15 $1,825.00 243.33 296.675 296.67 1/15 $1,825.00 121.67 175.00
1. Calculate the fraction.
Years’ DigitsFraction
1 5/15 2 4/15 3 3/15 4 2/15 5 1/15
Total 15
1
Total — ———Depreciation $1,825.00
2. Calculate the annual depreciation for year 1.
Original Cost $2,000.00Estimated Salvage Value – 175.00Estimated Total Depreciation $1,825.00Year’s Fraction 5/15Annual Depreciation $608.33
2
SUM-OF-THE-YEARS-DIGITS METHOD OF SUM-OF-THE-YEARS-DIGITS METHOD OF DEPRECIATIONDEPRECIATION
SUM-OF-THE-YEARS-DIGITS METHOD OF SUM-OF-THE-YEARS-DIGITS METHOD OF DEPRECIATIONDEPRECIATION
CENTURY 21 ACCOUNTING © 2009 South-Western, Cengage Learning
COMPARISON OF THREE METHODS OF DEPRECIATIONCOMPARISON OF THREE METHODS OF DEPRECIATIONCOMPARISON OF THREE METHODS OF DEPRECIATIONCOMPARISON OF THREE METHODS OF DEPRECIATION
Lesson 8-4, page 236Lesson 8-4, page 236
Plant asset: Computer Original cost: $2,000.00Depreciation method: Comparison Estimated salvage value: $175.00
Estimated useful life: 5 years
Straight-Line Double Declining-Balance Sum-of-the-Years-Digits Year Method Method Method
1 $ 365.00 $ 800.00 $ 608.332 365.00 480.00 486.673 365.00 288.00 365.004 365.00 84.20 243.335 365.00 121.67
Total Depreciation $1,825.00 $1825.00 $1,825.00
CENTURY 21 ACCOUNTING © 2009 South-Western, Cengage Learning
production-unit method of depreciation – Calculating estimated annual depreciation expense based on the amount of production expected from a plant asset
CENTURY 21 ACCOUNTING © 2009 South-Western, Cengage Learning
PRODUCTION-UNIT METHOD OF DEPRECIATIONPRODUCTION-UNIT METHOD OF DEPRECIATIONPRODUCTION-UNIT METHOD OF DEPRECIATIONPRODUCTION-UNIT METHOD OF DEPRECIATION
Lesson 8-4, page 237Lesson 8-4, page 237
Plant asset: TruckDepreciation method: Production-unit Estimated total depreciation: $16,200.00Original cost: $18,200.00 Estimated useful life: 90,000 milesEstimated salvage value: $2,000.00 Depreciation rate: $0.18 per mile driven
Beginning Miles Annual Ending Year Book Value Driven Depreciation Book Value
1 $18,200.00 9,000 $ 1,620.00 $ 16,580.002 16,580.00 23,000 4,140.00 12,440.003 12,440.00 25,000 4,500.00 7,940.004 7,940.00 22,000 3,960.00 3,980.205 3,980.20 8,000 1,440.00 2,540.00
Totals 87,000 $15,600.00
2
2. Calculate annual depreciation for year 1.
Total Miles Driven 9,000 Depreciation Rate $0.18= Annual Depreciation Exp. $1,620.00
1. Calculate the depreciation rate.
Original Cost $18,200– Estimated Salvage Value – 2,000= Est. Total Depreciation Expense $16,200 Estimated Useful Life (miles) 90,000= Depreciation Rate $0.18/mile
1
CENTURY 21 ACCOUNTING © 2009 South-Western, Cengage Learning
Modified Accelerated Cost Recovery System – a depreciation method required by the IRS to be used for income tax calculation purposes for most plant assets placed in service after 1986 – classify assets as belonging to “5” and “7” year property classes; assume purchase half way through the year; calculate by multiplying original cost by the rate for that year (rates determined by IRS). Not a generally accepted depreciation method for financial reporting.
CENTURY 21 ACCOUNTING © 2009 South-Western, Cengage Learning
OriginalCost
DepreciationRate
=Annual
DepreciationExpense
Plant asset: Printer Original cost: $2,000.00Depreciation method: MACRS Property class: 5 year
Year Depreciation Rate Annual Depreciation
CALCULATING DEPRECIATION EXPENSE FOR CALCULATING DEPRECIATION EXPENSE FOR INCOME TAX PURPOSESINCOME TAX PURPOSES
CALCULATING DEPRECIATION EXPENSE FOR CALCULATING DEPRECIATION EXPENSE FOR INCOME TAX PURPOSESINCOME TAX PURPOSES
Lesson 8-4, page 238Lesson 8-4, page 238
1 20.00% $400.002 32.00% 640.003 19.20% 384.004 11.52% 230.405 11.52% 230.406 5.76% 115.20
Totals 100.00% $2,000.00
Year 3 $2,000.00 19.20% = $384.00