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Instant Download PDF Financial Accounting 10th Edition Harrison Solutions Manual Full Chapter
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Chapter 7: Plant Assets, Natural Resources, & Intangibles
Learning Objectives
7-1
Copyright ©2015 Pearson Education Inc.
3. Measure and (1) What is (1) Allocating the cost S7-4, S7-8
record depreciation? of a fixed asset over
depreciation on the periods of its
plant assets estimated useful life.
7-2
Copyright ©2015 Pearson Education Inc.
(7) Which (7) DDB S7-5 (best method
depreciation method for tax purposes)
is usually the best
method to choose for
tax purposes during
the early years of a
fixed asset’s life?
4. Analyze the (1) What are the (1) a. Adjust S7-8
effect of a plant steps in accounting depreciation up to
asset disposal for a plant asset date of disposal:
disposal Depr. Exp. xxx
Accumulated
Depr. xxx
b. Update BV of
asset (cost –
accumulated
depreciation)
c. Cash proceeds –
BV = gain/loss
5. Apply GAAP for (1) Depletion of a (1) UOP S7-9 (depletion on
natural resources natural resource is natural resources)
and intangible similar to which
assets depreciation method?
7-3
Copyright ©2015 Pearson Education Inc.
Are intangible assets Intangible assets other
amortized? than goodwill are
amortized over their
useful lives.
7-4
Copyright ©2015 Pearson Education Inc.
7. Analyze rate of (1) What is the formula (1) Net income ÷ S7-11, S7-12
return on assets for rate of return on Average total assets
(ROA) assets (ROA)?
(2) What is a more (2) Use DuPont
detailed and informative Analysis to break
way to show ROA? ROA into components
as follows:
Net profit margin
ratio X Asset
turnover
[Net income/ Net
sales] X [Net sales/
Average total assets]
Chapter 7 Outline
7-5
Copyright ©2015 Pearson Education Inc.
C. Lump-sum (basket) purchases of assets
II. Distinguish a Capital Expenditure from an Immediate Expense
A. Capital expenditure: increase the asset’s capacity or extend useful life
B. Expense: maintain asset or restore it to working order
III. Measure and Record Depreciation on Plant Assets
A. Book value = cost – accumulated depreciation
B. Depreciation: allocation of a plant asset’s cost to expense over its life
C. Measuring depreciation
1. Cost
2. Estimated useful life: length of service expected from using the asset
3. Estimated residual value: expected cash value of an asset at end of
useful life
D. Depreciation methods
1. Straight-line method
2. Units-of-production method
3. Double-declining-balance method (an accelerated method)
E. Comparing depreciation methods
F. Other issues in accounting for plant assets
G. Depreciation for tax purposes
H. Depreciation for partial years
I. Changing the useful life of a depreciable asset
J. Fully depreciated assets
IV. Analyze the Effect of a Plant Asset Disposal
A. Disposing of a fully depreciated asset for no proceeds
B. Selling a plant asset
C. Exchanging a plant asset
D. Use T-accounts for analyzing plant asset transactions
V. Apply GAAP for Natural Resources and Intangible Assets
A. Accounting for natural resources – depletion
B. Accounting for intangible assets – amortization
C. Accounting for specific intangibles
1. Patents
2. Copyrights
3. Trademarks and trade names
4. Franchises and licenses
5. Goodwill
D. Accounting for research and development costs
VI. Explain the Effect of an Asset Impairment on the Financial Statements
A. Step 1: test the asset for impairment (NBV > Estimated FCF)
B. Step 2: compute impairment loss (NBV – FV)
7-6
Copyright ©2015 Pearson Education Inc.
VII. Analyze Rate of Return on Assets
A. ROA = Net Income
Avg. Total Assets
B. ROA measures how much the entity earned for each dollar of assets invested
C. DuPont analysis gives a more detailed view of ROA
VIII. Analyze the Cash Flow Impact of Long-Lived Asset Transactions
A. Acquisitions (investing activity)
B. Sales (investing activity)
C. Depreciation
Chapter Activities
1. Chapter Opener
This chapter’s spotlight is on the FedEx Corporation. Discuss the types of assets that FedEx
might use in their business. Ask the students to think about the different intangible assets that
FedEx might own. Challenge the students to think about how the cost of those assets might be
allocated on FedEx’s books by using the process of depreciation and amortization.
2. Depreciation Activity
Have the students list on the board the assets that they own personally (cars, computers, homes,
etc.), along with the approximate costs of each. Then assign estimated lives to each of the assets
and an estimated residual value. Then ask the students to calculate depreciation for each of these
items using the three methods of depreciation. Once the students have this information, they can
determine accumulated depreciation per year and book value.
Difficult Topics
7-7
Copyright ©2015 Pearson Education Inc.
Chapter 7: Assignment Grid
(Will have an X if
available)
Assignment Topic(s) L.O. Estimated Level of Excel General
Time Difficulty Templates Ledger
(minutes) Templates
S7-1 Measure the cost and 1 5 Easy
book value of a
company’s plant assets
S7-2 Measure and record the 1 5 Easy X
cost of individual assets
in a lump-sum purchase
of assets
S7-3 Distinguish a capital 2 5 Medium
expenditure from an
immediate expense
S7-4 Compute depreciation 3 10-15 Easy
and book value by
three methods – first
year only
S7-5 Select the best 3 10 Easy
depreciation method
for income tax
purposes
S7-6 Compute partial year 3 5-10 Medium
depreciation, and select
the best depreciation
method
S7-7 Compute and record 3 10 Medium
depreciation after a
change in useful life of
the asset
S7-8 Compute depreciation; 3,4 5-10 Medium
record a gain or loss on
disposal
S7-9 Account for the 5 5-10 Easy
depletion of a
company’s natural
resources
S7-10 Measure and record 5 5-10 Medium
goodwill
S7-11 Calculate return on 7 5 Easy
assets
S7-12 Calculate return on 7 5 Medium
assets
7-8
Copyright ©2015 Pearson Education Inc.
Assignment Topic(s) L.O. Estimated Level of Excel General
Time Difficulty Templates Ledger
(minutes) Templates
S7-13 Analyze the cash flow 8 5 Medium
impact of investing
activities on the
statement of cash
flows
S7-14 Explain the effect of 6 5 Medium
asset impairment on
financial statements
E7-15A Measure the cost of 1 5-10 Medium
plant assets
E7-16A Allocate costs to assets 1,4 10-15 Medium
acquired in a lump-
sum purchase; dispose
of a plant asset
E7-17A Distinguish capital 2 5-10 Easy
expenditures from
expenses
E7-18A Measure, depreciate, 1,3 15 Medium
and report plant assets
E7-19A Determine 3 15-20 Medium X
depreciation amounts
by three methods
E7-20A Report plant assets, 1,3,8 15 Easy
depreciation, and
investing cash flows
E7-21A Change a plant asset’s 3 10-15 Medium
useful life
E7-22A Measure DDB 3,4 15-20 Medium
depreciation; analyze
the effect of a sale of a
plant asset
E7-23A Measure a plant asset’s 1,3,4 10-15 Medium X
cost; calculate UOP
depreciation; analyze
the effect of a used
asset trade-in
E7-24A Record natural 5 10-15 Medium
resource assets and
depletion
7-9
Copyright ©2015 Pearson Education Inc.
Assignment Topic(s) L.O. Estimated Level of Excel General
Time Difficulty Templates Ledger
(minutes) Templates
E7-25A Record intangibles, 5,6 10-15 Medium
amortization, and
impairment
E7-26A Compute and account 5,6 5-10 Medium
for goodwill; explain
the effect of asset
impairment
E7-27A Calculate return on 7 5-10 Medium X
assets
E7-28A Report cash flows for 8 10 Medium
plant assets
E7-29B Measure the cost of 1 5-10 Medium
plant assets
E7-30B Allocate costs to assets 1,4 10-15 Difficult
acquired in a lump-
sum purchase; dispose
of a plant asset
E7-31B Distinguish capital 2 5-10 Difficult
expenditures from
expenses
E7-32B Measure, depreciate, 1,3 15 Difficult
and report plant assets
E7-33B Determine 3 15-20 Difficult X
depreciation amounts
by three methods
E7-34B Report plant assets, 1,3,8 15 Difficult
depreciation, and
investing cash flows
E7-35B Change a plant asset’s 3 10-15 Medium
useful life
E7-36B Measure DDB 3,4 15-20 Difficult
depreciation; analyze
the effect of a sale on a
plant asset
E7-37B Measure a plant asset’s 1,3,4 10-15 Difficult X
cost; calculate UOP
depreciation; analyze
the effect of a used
asset trade-in
7-10
Copyright ©2015 Pearson Education Inc.
Assignment Topic(s) L.O. Estimated Level of Excel General
Time Difficulty Templates Ledger
(minutes) Templates
E7-38B Record natural 5 10-15 Medium
resource assets and
depletion
E7-39B Record intangibles, 5,6 10-15 Medium
amortization, and
impairment
E7-40B Compute and account 5,6 5-10 Medium
for goodwill and
impairment
E7-41B Calculate return on 7 5-10 Medium X
assets
E7-42B Report cash flows for 8 10 Medium
plant assets
Q7-43 to Practice Quiz All 30-40 Medium
Q7-57
P7-58A Measure and account 1,2,3 20-30 Medium
for plant assets;
distinguish a capital
expenditure from an
expense; measure and
record depreciation
P7-59A Measure and account 1,3 15 Medium X
for the cost of plant
assets; measure and
record depreciation
under DDB
P7-60A Measure and account 1,3,4 25-35 Medium X
for the cost of plant
assets and
depreciation; analyze
and record a plant asset
disposal
P7-61A Measure and account 1,3,8 30-40 Medium X
for the cost of a plant
asset; measure
depreciation by three
methods; identify the
cash flow advantage of
accelerated
depreciation for tax
purposes
7-11
Copyright ©2015 Pearson Education Inc.
Assignment Topic(s) L.O. Estimated Level of Excel General
Time Difficulty Templates Ledger
(minutes) Templates
P7-62A Analyze plant asset 1,3,4, 20-25 Medium
transactions from a 6,8
company’s financial
statements
P7-63A Account for natural 5 20-30 Medium X
resources
P7-64A Analyze the effect of a 1,4,8 30-40 Medium
plant asset addition and
disposal; report plant
asset transactions on
the financial statements
P7-65A Calculate return on 7 20-30 Medium
assets
P7-66A Analyze the effect of a 4,8 20-30 Medium
plant asset disposal and
the cash flow impact of
long-lived asset
transactions
P7-67B Measure and account 1,2,3 20-30 Medium
for plant assets;
distinguish a capital
expenditure from an
expense; measure and
record depreciation
P7-68B Measure and account 1,3 15 Medium X
for the cost of plant
assets; measure and
record depreciation
under DDB
P7-69B Measure and account 1,3,4 25-35 Medium
for the cost of plant
assets and depreciation;
analyze and record a
plant asset disposal
P7-70B Measure and account 1,3,8 30-40 Medium X
for the cost of a plant
asset; measure
depreciation by three
methods; identify the
cash flow advantage of
accel. depreciation for
tax purposes
7-12
Copyright ©2015 Pearson Education Inc.
Assignment Topic(s) L.O. Estimated Level of Excel General
Time Difficulty Templates Ledger
(minutes) Templates
P7-71B Analyze plant asset 1,3,4, 20-25 Medium
transactions from a 6,8
company’s financial
statements
P7-72B Account for natural 5 20-30 Medium
resources
P7-73B Analyze the effect of a 1,4,8 30-40 Medium
plant asset addition and
disposal; report plant
asset transactions on
the financial statements
P7-74B Calculate return on 7 20-30 Medium
assets
P7-75B Analyze the effect of a 4,8 20-30 Medium
plant asset disposal and
the cash flow impact of
long-lived asset
transactions
E7-76 Determine the effect on 3 15-20 Medium
net income of a change
in the depreciation
method
E7-77 Distinguish a capital 2 15-25 Medium
expenditure from an
expense, and measure
the financial statement
effects of an expensing
error
P7-78 Determine plant and 4 20-30 Medium
equipment transactions
for an actual company
Decision Measure profitability 3 30-45 Difficult
Case 1 based on different
inventory and
depreciation methods
Decision Distinguish between 2,5 20-30 Medium
Case 2 capital expenditures
and expense; account
for plant assets and
intangible assets
Ethical United Jersey Bank All 30-40 Difficult
Issue
7-13
Copyright ©2015 Pearson Education Inc.
Assignment Topic(s) L.O. Estimated Level of Excel General
Time Difficulty Templates Ledger
(minutes) Templates
Focus on Analyze activity in 2,3,6 30-40 Difficult
Financials: plant assets
Amazon
.com
Focus on Measure the cost of 1,5,6, 20-30 Difficult
Analysis: plant assets; explain 7,8
Yum! plant asset activity;
Brands, apply GAAP for
Inc. intangible assets,
explain an asset
impairment, analyze
rate of return on assets;
analyze the cash flow
impact of long-lived
asset transactions
Group Visit a local business All 90+ Difficult
Project
7-14
Copyright ©2015 Pearson Education Inc.
Answer Key to Chapter 7 Quiz (Quiz on following pages.)
1. D
2. A
3. C
4. A
5. D
6. A
7. B
8. A
9. B
10. C
7-15
Copyright ©2015 Pearson Education Inc.
Name____________________________________ Date_________________
Section_______________
CHAPTER 7
10-MINUTE QUIZ
2. Refer to Case 7-1. Using the straight-line method, what is the amount of depreciation
expense in Year two of the asset’s life?
A. $10,000
B. $20,000
C. $11,000
D. $12,000
3. Refer to Case 7-1. Now assume the business uses the units-of-production method. If the
asset produces 250,000 units in Year 1 and 200,000 units in Year two, what is the amount
of depreciation expense for Year two?
A. $22,000
B. $45,000
C. $20,000
D. $25,000
4. Refer to Case 7-1 and Question 3. What is the book value of the asset at the end of Year
two, using the units-of-production method?
A. $65,000
B. $60,500
C. $80,000
D. $90,000
7-16
Copyright ©2015 Pearson Education Inc.
5. Refer to Case 7-1. What is the depreciation expense in Year one, if the double-declining-
balance method is used?
A. $11,000
B. $10,000
C. $20,000
D. $22,000
7. In calculating the total cost of land, all costs are included except:
A. Purchase price.
B. Fencing
C. Brokerage commission.
D. Survey fees
8. If a plant asset is sold and a gain is incurred, the entry to record the sale would include a
debit to:
A. Accumulated Depreciation.
B. Gain on Sale of Asset.
C. Plant Asset.
D. Sales Revenue.
9. Return on assets:
A. is calculated as average total assets/net income.
B. is calculated as net income/average total assets.
C. is calculated as net income/net sales.
D. measures the amount of sales dollars generated by each dollar of assets invested in the
business.
7-17
Copyright ©2015 Pearson Education Inc.
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