Identification of Long-Term Assets Terminology

P1. Common terms associated with long-term assets follow.

a.    Tangible assets                                                       g. Depreciation

b.    Natural resources                                                   h. Depletion

c.    Intangible assets                                                     i. Amortization

d.   Additions                                                               j. Revenue expenditure

e.    Betterments

f.     Extraordinary repair

ReQUIReD

1.    For each of the statements that follow, identify the term with which it is associated. (If two terms apply, choose the one that is most closely associated.)

1.   Periodic cost associated with intangible assets.

2.   Cost of constructing a new wing on a building.

3.   A group of assets encompassing property, plant, and equipment.

4.   Cost associated with enhancing a building but not expanding it.

5.   Periodic cost associated with tangible assets.

6.   A group of assets that gain their value from contracts or rights.

7.   Cost of normal repairs to a building.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

8.   Assets whose value derives from what can be extracted from them.

9.   Periodic cost associated with natural resources.

10.    Cost of a repair that extends the useful life of a building.

2.    aCCounting ConneCtion ▶ Assuming the company uses cash for all its expendi- tures, which of the terms listed above would you expect to see on the income state- ment? Which ones would not result in an outlay of cash?

Determining Cost of Assets

P2. Cergo Computers constructed a new training center in 2014, which you have been hired to manage. A review of the accounting records shows the following expenditures debited to an asset account called Training Center:

 

Attorney’s fee, land acquisition	$     34,900
Cost of land	598,000
Architect’s fee, building design	102,000
Building	1,020,000
Parking lot and sidewalk	135,600
Electrical wiring, building	164,000
Landscaping	55,000
Cost of surveying land	9,200
Training equipment, tables, and chairs	136,400
Installation of training equipment	68,000
Cost of grading the land	14,000
Cost of changes in building to soundproof rooms	       59,200
Total account balance	$2,396,300

During the center’s construction, an employee of Cergo worked full-time overseeing the project. He spent two months on the purchase and preparation of the site, six months on the construction, one month on land improvements, and one month on equipment installation and training-room furniture purchase and setup. His salary of $64,000 dur- ing this ten-month period was charged to Administrative Expense. The training center was placed in operation on November 1.

ReQUIReD

1.    Prepare a schedule with the following four column (account) headings: Land, Land Improvements, Building, and Equipment. Place each of the above expenditures in the appropriate column. Total the columns.

2.    ConCept ▶ What impact does the classification of the items among several accounts have on evaluating the profitability performance of the company?