Solution Manual
Fundamental Accounting Principles, ( Volume 2
By Larson/Jensen/Dieckmann.
17th edition
,Chapter 9 Property, Plant and Equipment and Intangibles
Chapter Opening Critical Thinking Challenge Questions*
You are asked by the CFO of YVR to evaluate the newest capital asset, the Airside
Operations Building at YVR, and to break it into major components for depreciation
purposes. Identify at least five major components and determine an expected life for each
of those components.
Components of the Airside Operations Building could include:
1. Building exterior walls 40 years
2. Roofing 25 years
3. Pavement 15 years
4. Landscaping 10 years
5. Electrical Components 15 years
6. Flooring 15 years
7. Plumbing 15 years
8. Furniture and Fixtures 15 years
9. Fire Equipment 20 years
10. Snow Removal Equipment 20 years
*The Chapter 9 Critical Thinking Challenge questions are asked at the beginning of this
chapter. Students are reminded at the conclusion of the chapter to refer to the Critical
Thinking Challenge questions at the beginning of the chapter. The solutions to the
Critical Thinking Challenge questions are available here in the Solutions Manual and
accessible to students at Connect.
,Concept Review Questions
1. A property, plant and equipment asset is long-lived in that it has a service life of longer
than one accounting period; it is used in the production or sale of products or services.
It is different from other assets such as receivables or inventory in that the property,
plant and equipment is used within the operations of business to generate profit,
whereas inventory is purchased or manufactured for resale. Receivables represent the
amounts due from customers based on past transactions.
2. Land held for future expansion is classified as a long-term investment. It is not a
property, plant and equipment asset because it is not being used in the production or
sale of other assets or services.
3. The cost of a property, plant and equipment asset includes all normal, reasonable, and
necessary costs of getting the asset in place and ready to use. For example, cost
includes such items as the invoice price paid, freight costs, non refundable sales taxes
(PST, HST) and all costs incurred related to installing and testing an asset before it is put
into use.
4. Land is an asset with an unlimited life and, therefore, is not subject to depreciation.
Land improvements refer to items such as fencing, parking lots surfaces, landscape
lighting and have limited lives and are depreciated over their useful lives.
5. No. The Accumulated Depreciation, Machinery account is a contra asset account with a
credit balance that does not represent cash or any other funds. Funds available for
buying machinery would be shown on the balance sheet as liquid assets with debit
balances, such as the account Cash and Cash Equivalents. The balance of the
Accumulated Depreciation, Machinery account shows the portion of the machinery's
original cost that has been charged to depreciation expense, and gives some indication
of how soon the asset will need to be replaced.
6. Revenue expenditures, such as repairs, are made to keep a plant and equipment asset in
normal, good operating condition, and should be charged to expense of the current
period. Capital expenditures are made to extend the service potential or the life of a
plant and equipment asset beyond the original estimated life and are charged to the
plant and equipment asset account. After incurring a capital expenditure, a depreciation
policy also needs to be established. 7. Because the $75 cost of the plant and equipment
asset is not likely to be material to the users of the financial statements, the materiality
principle justifies charging it to expense.
8. Danier Leather did not report any gains or losses on disposal of assets for its year ended
June 28, 2014. However, the corporation did have an Impairment loss on property and
equipment of $663,000.
9. A company might sell or exchange an asset when it reaches the end of its useful life, or
if it becomes inadequate or obsolete, or because the company has changed its business
plans. An asset may also be damaged or destroyed by fire or some other accident.
10. An intangible asset has no physical existence. Its value comes from the unique legal
and contractual rights held by its owner.
, 11. Types of intangible assets are patents, copyrights, leaseholds, drilling rights, and
trademarks.
12. WestJet reported $60,623,000 as Intangible assets at December 31, 2014.
13. A business can only record goodwill when the price paid for a company being purchased
exceeds the fair market value of this company’s net assets (assets minus liabilities) if
purchased separately.
14. Westjet did not report any Goodwill at December 31, 2014.
15. When an asset is constructed, such as the development of a new runway, all costs for
construction-related materials and labour costs can be capitalized. Also any electricity
and utilities consumed relating to the project, plus a reasonable amount for depreciation
on any equipment used during construction. Other permitted costs include design fees,
building materials and any interest charges on debt outstanding during the period of
construction incurred to finance the project.
Fundamental Accounting Principles, ( Volume 2
By Larson/Jensen/Dieckmann.
17th edition
,Chapter 9 Property, Plant and Equipment and Intangibles
Chapter Opening Critical Thinking Challenge Questions*
You are asked by the CFO of YVR to evaluate the newest capital asset, the Airside
Operations Building at YVR, and to break it into major components for depreciation
purposes. Identify at least five major components and determine an expected life for each
of those components.
Components of the Airside Operations Building could include:
1. Building exterior walls 40 years
2. Roofing 25 years
3. Pavement 15 years
4. Landscaping 10 years
5. Electrical Components 15 years
6. Flooring 15 years
7. Plumbing 15 years
8. Furniture and Fixtures 15 years
9. Fire Equipment 20 years
10. Snow Removal Equipment 20 years
*The Chapter 9 Critical Thinking Challenge questions are asked at the beginning of this
chapter. Students are reminded at the conclusion of the chapter to refer to the Critical
Thinking Challenge questions at the beginning of the chapter. The solutions to the
Critical Thinking Challenge questions are available here in the Solutions Manual and
accessible to students at Connect.
,Concept Review Questions
1. A property, plant and equipment asset is long-lived in that it has a service life of longer
than one accounting period; it is used in the production or sale of products or services.
It is different from other assets such as receivables or inventory in that the property,
plant and equipment is used within the operations of business to generate profit,
whereas inventory is purchased or manufactured for resale. Receivables represent the
amounts due from customers based on past transactions.
2. Land held for future expansion is classified as a long-term investment. It is not a
property, plant and equipment asset because it is not being used in the production or
sale of other assets or services.
3. The cost of a property, plant and equipment asset includes all normal, reasonable, and
necessary costs of getting the asset in place and ready to use. For example, cost
includes such items as the invoice price paid, freight costs, non refundable sales taxes
(PST, HST) and all costs incurred related to installing and testing an asset before it is put
into use.
4. Land is an asset with an unlimited life and, therefore, is not subject to depreciation.
Land improvements refer to items such as fencing, parking lots surfaces, landscape
lighting and have limited lives and are depreciated over their useful lives.
5. No. The Accumulated Depreciation, Machinery account is a contra asset account with a
credit balance that does not represent cash or any other funds. Funds available for
buying machinery would be shown on the balance sheet as liquid assets with debit
balances, such as the account Cash and Cash Equivalents. The balance of the
Accumulated Depreciation, Machinery account shows the portion of the machinery's
original cost that has been charged to depreciation expense, and gives some indication
of how soon the asset will need to be replaced.
6. Revenue expenditures, such as repairs, are made to keep a plant and equipment asset in
normal, good operating condition, and should be charged to expense of the current
period. Capital expenditures are made to extend the service potential or the life of a
plant and equipment asset beyond the original estimated life and are charged to the
plant and equipment asset account. After incurring a capital expenditure, a depreciation
policy also needs to be established. 7. Because the $75 cost of the plant and equipment
asset is not likely to be material to the users of the financial statements, the materiality
principle justifies charging it to expense.
8. Danier Leather did not report any gains or losses on disposal of assets for its year ended
June 28, 2014. However, the corporation did have an Impairment loss on property and
equipment of $663,000.
9. A company might sell or exchange an asset when it reaches the end of its useful life, or
if it becomes inadequate or obsolete, or because the company has changed its business
plans. An asset may also be damaged or destroyed by fire or some other accident.
10. An intangible asset has no physical existence. Its value comes from the unique legal
and contractual rights held by its owner.
, 11. Types of intangible assets are patents, copyrights, leaseholds, drilling rights, and
trademarks.
12. WestJet reported $60,623,000 as Intangible assets at December 31, 2014.
13. A business can only record goodwill when the price paid for a company being purchased
exceeds the fair market value of this company’s net assets (assets minus liabilities) if
purchased separately.
14. Westjet did not report any Goodwill at December 31, 2014.
15. When an asset is constructed, such as the development of a new runway, all costs for
construction-related materials and labour costs can be capitalized. Also any electricity
and utilities consumed relating to the project, plus a reasonable amount for depreciation
on any equipment used during construction. Other permitted costs include design fees,
building materials and any interest charges on debt outstanding during the period of
construction incurred to finance the project.
