Chapter 10

Plant Assets, Natural Resources, and Intangibles

QUESTIONS

1. A plant asset is tangible; it is used in the production or sale of other assets or services; and it has a useful life longer than one accounting period.

2. The cost of a plant asset includes all normal and reasonable expenditures necessary to get the asset in place and ready for its intended use.

3. Land is an asset with an unlimited life and, therefore, is not subject to depreciation. Land improvements have limited lives and are subject to depreciation.

4. Often the lump-sum or basket purchase includes assets with different lives that must be depreciated separately. Sometimes the purchase may include land, which is never depreciated.

5.
Quick Study 10-3 (10 minutes)

Straight-line depreciation

($32,500 - $2,500) / 4 years = $7,500 depreciation per year

Quick Study 10-4 (10 minutes)

Units-of-production depreciation

($32,500 - $2,500) / 200 concerts = $ 150 depreciation per concert x 47 concerts in 2009 $7,050 depreciation in 2009
Quick Study 10-5 (10 minutes)

|$32,500 |Cost |
|- 7,500 |Accumulated depreciation (first year) |
|25,000 |Book value at point of revision |
|- 2,500 |Salvage value |
|22,500 |Remaining depreciable cost |
| ÷ 2 |Years of life remaining |
|$11,250 |Depreciation per year for years 2 and 3 |

Quick Study 10-6 (10 minutes)

Note: Double-declining-balance rate = (100% / 8 years) x 2 = 25%

First year: