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Assets that benefit more than one accounting period must be capitalized. To capitalize is to debit an asset for the original cost.
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Learning Objective 1
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Learning Objective 2 Calculating depreciation using one of four methods: straight-line, declining-balance, units-of-production, and sum-of-the-years-digits.
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(Cost Residual value) Useful life in years Depreciation: ($20,000 $2,000) 5 = $18,000 5 = $3,600
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The units-of-production method assigns a fixed amount of depreciation to each unit of output or service produced by the plant asset.
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Depreciation @ $.20/mile: Year 1: 30,000 miles = $ 6,000 Year 2: 21,000 miles = $ 4,200 Year 3: 15,000 miles = $ 3,000 Year 4: 5,000 miles = $ 1,000 Year 5: 19,000 miles = $ 3,800 Total: 90,000 miles = $18,000
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Learning Objective 3
Calculating depreciation for tax purposes using the Modified Accelerated Cost Recovery System.
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Learning Objective 4
Explaining the difference between capital expenditures and revenue expenditures.
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Learning Objective 5
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How does a company dispose of its plant assets? discarding selling exchanging for similar plant assets
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7,000
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The IRS allows neither a gain nor a loss to be recognized on similar exchanges.
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Learning Objective 6
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End of Chapter 17
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