【正文】 E assets’ tangible physical existence differentiates them from intangible assets. PPamp。 investment in the firm’s equity securities. Common stock is the portion of stockholders39。 investment valued at par. Other paidincapital is the excess of the shareholders’ investment over the stock’s par value. Retained earnings is the total ine less the amount distributed to the owners as dividends from the beginning of business. A classified balance sheet A balance sheet can be presented in many different ways. A classified balance sheet is one in which the accounts are ordered in some logical manner, such as by liquidity or maturity. In a typical classified balance sheet: 1. Assets are listed in order of liquidity, from most liquid to least liquid. 2. Liabilities are listed in order of when they bee due. 3. Equity is generally presented with contributed or paidin capital first and retained earnings last. b: Define each ponent of a multistep ine statement and prepare a multistep ine statement. A multistep ine statement is a statement that provides subtotals along the way to providing ine. The basic structure of the ine statement is: sales less cost of goods sold equals gross margin (. gross profit) less operating expenses equals Ine from operations (. operating ine) add or subtract other revenues and expenses equals ine before ine taxes less ine taxes equals ine. ? Gross sales or revenues are the total sales (cash and credit) during an accounting period. Net sales or revenues are the gross amount less returns, allowances, and discounts. ? Cost of goods sold is the cost of sales for the goods sold during the period。E versus other assets: ? The primary difference between plant assets and inventory is that plant assets are held to be used in operations, whereas inventory is held to be sold. ? The primary difference between plant assets and current assets in general is their useful lives. ? The primary difference between plant assets and longterm investments is that plant assets are used in the operations of the business. b: Calculate the cost, and record the purchase of, property, plant and equipment. The cost of plant assets, as with all assets, is their cash or cash equivalent price plus all necessary expenditures made prior to placing the asset in service. Such expenditures include transportation(in), insurance while being transported, installation cost, initial timing cost, search cost, broker cost, legal fees to transfer title, etc. If the plant is constructed, capitalized costs (added to the purchase cost of the asset) include materials, labor, reasonable amounts of overhead, interest cost during the construction period, architectural fees, etc. Cost of land includes search cost, real estate missions, title transfer fees, back property taxes paid, surveying and landscaping costs, etc. All these expenditures are made prior to and are necessary for placing the asset in service. The entry to record these capitalized expenditures (assuming they were made in cash) is: Land XX ? Building XX ? Equipment XX ? Cash ? XX c: Explain depreciation accounting (including the reasons for depreciation), calculate depreciation using the straightline and unitsofproduction methods, and calculate depreciation after revising the estimated usefull life of an asset. Example (Straight Line): Let a machine have a historical cost of $12,000, an estimated useful life of 10 years after which time the machine will have an estimated salvage value of $2,000. Cost less salvage value equals the depreciable value, ($12,000 – $2,000 = $10,000). The straightline depreciation method results in equal depreciation expenses each year over the equipment’s 10 year life: SLD = (cost – salvage value) / life = (12,000 – 2,000) / 10 = $1,000 per year. Now, say that after three years of use (accumulated depreciation is $3,000), it is determined that the machine can only be used for 2 more years. To revise the depreciation schedule the book value of the machine ($12,000 – $3,000 = $9,000) less the salvage value of $2,000 will be depreciated over the remaining 2 years of useful life: SLD = ( book value – salvage) / remaining life = (9,000 – 2,000)/2 = $3,500. Example (Units of Production Method): Assume a truck costs $920,000, has an estimated life of 300,000 miles, and a salvage value of $20,000. The cost of the truck per mile driven is (cost – salvage) / estimated miles = ($920,000 – $20,000) / 300,000 = $ per mile. If the truck is driven for 50,000 miles in year one, then the unitsofproduction depreciation expense is = (miles driven)(depreciation per mile) = (50,000 miles)($ per mile) = $150,000. d: Describe how to account for the disposal of depreciable assets. When an asset is sold or discarded, its market value at the time of sale or disposal will most likely be different than the asset39。E assets are not ultimately sold as would be done with interest or dividend generating investments. PPamp。 investment and the total earnings retained from the beginning of the business. Contributed capital (paidincapital) is the amount of the stockholders39。 that is, the cost of the merchandise (paid for or the cost to manufacture). ? Operating expenses are the costs of operating a business other than the cost of goods sold. Examples include selling expenses and administrative expenses. ? Other revenues and expenses are nonoperating items. Examples include interest expense and interest ine. ? Ine taxes are the provision for ine taxes for reporting purposes. : Preliminary Reading ShortTerm Liquid Assets a: Describe how to choose the appropriate accounting method for investment securities and explain how fair (market) value gains and losses on such investments are reported. Shortterm investments (. marketable securities) are investments intended to be held on