Accounting Exam 5
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four main issues in accounting for plant assets:
- (1) computing the costs of plant assets
- (2) allocating the costs of most plant assets (less any salvage amounts) against revenues for the periods they benefit
- (3) accounting for expenditures such as repairs and improvements to plant assets
- (4) recording the disposal of plant assets
straight line depreciation:
(cost-salvage value) / useful life in periods
units of production method:
- (cost-salvage)/ total units in production = depreciation per unit
- depreciation per unit x units produced in period = depreciation expense
declining balance method:
- 100% / useful life = straight line rate
- 2 x straight line rate = double-declining-balance rate
- DDBR x beginning period book value = depreciation expense
change in estimates for depreciation:
(book value – revised salvage value)/ revised remaining useful life
Total Asset Turnover:
net sales / average total assets
Times interest earned:
income before interest expense and income taxes/ interest expense
Plant assets are set apart from other tangible assets by two important features:
- use in operations
- useful lives longer than one period.
- Revenue expenditures expire in the current period and are debited to expense accounts and matched with current revenues.
- Ordinary repairs are an example of revenue expenditures
- Capital expenditures benefit future periods and are debited to asset accounts.
- Examples of capital expenditures are extraordinary repairs and betterments.
Total asset turnover measures:
a company’s ability to use its assets to generate sales
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