Problem Solving Survival Guide to accompany Intermediate Accounting, Volume 1: Chapters 1 - 14, 15th Edition

CHAPTER 10

ACQUISITION AND DISPOSITION OF PROPERTY, PLANT, AND EQUIPMENT

OVERVIEW

Assets that have physical existence and that are expected to be used in revenue-generating operations for more than one year or operating cycle, whichever is longer, are classified as long-term tangible assets. Some problems may arise in determining the acquisition cost of a fixed asset, such as: the initial acquisition may be the result of several expenditures, a plant asset may be obtained in exchange for the issuance of stock, one fixed asset may be exchanged for another fixed asset, a plant asset may be obtained on a deferred payment plan, or additional expenditures may be involved subsequent to acquisition. These and other issues and their related accounting procedures are examined in this chapter.

SUMMARY OF LEARNING OBJECTIVES

1. Describe property, plant, and equipment. The major characteristics of property, plant, and equipment are: (1) They are acquired for use in operations and not for resale. (2) They are long-term in nature and usually subject to depreciation. and (3) They possess physical substance.
2. Identify the costs included in the initial valuation of land, buildings, and equipment. The costs included in the initial valuation of property, plant, and equipment at acquisition are as follows:

   Cost of land: Includes all expenditures made to acquire land and to ready it for use. Land costs typically include (1) the purchase price; (2) closing costs, such as title to the land, attorney's fees, ...