Learning Objectives

Define, classify, and account for the cost of fixed assets.

• Fixed assets are long-term tangible assets that a firm owns and uses in its operations to generate income, and they are classified as property, plant, and equipment. The cost is accounted for by capitalizing the purchase price and any costs necessary to bring the asset to a usable state.

• Fixed assets are short-term assets that are quickly converted to cash, classified as inventory, and accounted for by expensing the purchase price immediately.

• Fixed assets are intangible assets that do not have physical substance, classified as goodwill, and accounted for by amortizing the purchase price over time.

• Fixed assets are financial assets that represent ownership in other companies, classified as investments, and accounted for by recording at market value.

Describe the accounting for intangible assets, such as patents, copyrights, and goodwill.

• Intangible assets are recorded at cost and amortized over their useful life.

• Intangible assets are recorded at fair value and not amortized.

• Intangible assets are expensed immediately upon acquisition.

• Intangible assets are recorded at cost and not amortized.

Describe how depreciation expense is reported on an income statement and prepare a balance sheet that includes fixed assets and intangible assets.

• Depreciation expense is reported as an operating expense on the income statement, and fixed assets and intangible assets are listed on the balance sheet under non-current assets.

• Depreciation expense is reported as a revenue on the income statement, and fixed assets and intangible assets are listed on the balance sheet under current assets.

• Depreciation expense is reported as a liability on the income statement, and fixed assets and intangible assets are listed on the balance sheet under equity.

• Depreciation expense is reported as an asset on the income statement, and fixed assets and intangible assets are listed on the balance sheet under liabilities.

What are items that are classified and recorded as fixed assets?

• A) Land, buildings, or equipment

• B) Stocks and bonds

• C) Cash and receivables

• D) Inventory

Which of the following is a cost associated with acquiring a building?

• Freight

• Architects' fees

• Purchase price

• Title fees

Which of the following is a cost associated with acquiring land?

• Assembly

• Sales taxes

• Testing for use

• Reconditioning

Fill in the blank: ________ fees are a cost associated with acquiring land.

• Title fees.

• Registration fees.

• Inspection fees.

• Legal fees.

Fill in the blank: ________ is a cost associated with acquiring machinery and equipment.

• Freight.

• Installation.

• Insurance.

• Maintenance.

Fill in the blank: ________ is a cost associated with acquiring land and involves removing unwanted building less any salvage.

• Removing unwanted building less any salvage.

• Construction cost of new building.

• Cost of landscaping.

• Legal fees for land acquisition.

Which of the following is a cost associated with land improvements?

• A) Trees and shrubs

• B) Insurance costs

• C) Interest on money borrowed

• D) Testing for use