SOLUTIONS MANUAL - Solutions Manual to accompany Fundamental Accou...

Last revised: November 19, 2012

Solutions Manual to accompany Fundamental Accounting Principles, 14th Canadian Edition. © 2013 McGraw-Hill Ryerson Ltd. 10-1

SOLUTIONS MANUAL

to accompany Fundamental Accounting Principles 14th Canadian Edition by Larson/Jensen

Prepared by:

Tilly Jensen, Athabasca University Wendy Popowich, Northern Alberta Institute of Technology Susan Hurley, Northern Alberta Institute of Technology Ruby So Koumarelas, Northern Alberta Institute of Technology

Technical checks by:

Ross Meacher Betty Young, Red River College, ANSR Source

Fundamental Accounting Principles Canadian Vol 2 Canadian 14th Edition Larson Solutions Manual Visit TestBankDeal.com to get complete for all chapters

Last revised: November 19, 2012

Solutions Manual to accompany Fundamental Accounting Principles, 14th Canadian Edition. © 2013 McGraw-Hill Ryerson Ltd. 10-2 Chapter 10 Property, Plant and Equipment and Intangibles

Chapter Opening Critical Thinking Challenge Questions*

How do PPE assets generate sales? The article says that property, plant and equipment (PPE) are an “asset group on the balance sheet”. What other asset groups are there?

• PPE assets, such as manufacturing equipment and the building in which the

equipment is housed, are responsible for producing the goods a company sells to “generate sales”. Other asset groups on the balance sheet are current assets, long-term investments, and intangible assets.

*The Chapter 10 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.

Last revised: November 19, 2012

Solutions Manual to accompany Fundamental Accounting Principles, 14th Canadian Edition. © 2013 McGraw-Hill Ryerson Ltd. 10-3 Concept Review Questions

• 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.

• 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.

• 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.

• 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.

• 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. 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.

• 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.

• 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.

• Danier Leather did not report any gains or losses on disposal of assets for its year

ended June 25, 2011. High Liner Foods reported a “loss on disposal of assets” of $271,000 for its December 31, 2011 year end. Shoppers Drug Mart showed a $2,015,000 “loss on sale or disposal of property and equipment, including impairments” for its December 31, 2011 year end. WestJet reported a “loss on disposal of property and equipment of $54,000 for its December 31, 2011 year end.

• 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.

• An intangible asset has no physical existence. Its value comes from the unique legal

and contractual rights held by its owner.

• Intangible assets are generally recorded at their cost and amortized over their predicted

useful life in a manner that is similar to what is used to depreciate plant and equipment assets.

• High Liner Foods reported $103,109,000 as Intangible assets at December 31, 2011.
• A business has 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.

• Shoppers Drug Mart reported $2,499,722,000 as Goodwill at December 31, 2011.

Last revised: November 19, 2012

Solutions Manual to accompany Fundamental Accounting Principles, 14th Canadian Edition. © 2013 McGraw-Hill Ryerson Ltd. 10-4

QUICK STUDY

Quick Study 10-1 (5 minutes)

$18,000 + $180,000 + $3,000 + $600 = $201,600

Quick Study 10-2 (10 minutes)

• (a) R

(b) C (c) R (d) C

2.(a) Mar. 15 Repairs Expense .................................. 120 Accounts Payable ........................... 120 To record repairs.(b) Mar. 15 Refrigeration Equipment ..................... 40,000 Accounts Payable ........................... 40,000 To record capital expenditure.(c) Mar. 15 Repairs Expense .................................. 200 Accounts Payable ........................... 200 To record repairs.(d) Mar. 15 Office Building ...................................... 175,000 Accounts Payable ........................... 175,000 To record capital expenditure.