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Accounting for Long-Term Assets

Most businesses, no matter their size, invest in long-term assets. Long-term assets include physical assets as well as assets without a physical substance. Long-term physical assets are also referred to as capital assets, plant assets or fixed assets; and include property (land and natural resource properties), plant (buildings, offices, factories and warehouses), and equipment (machinery, furniture, and tools). Long-term non-physical assets are often referred to as intangible assets, and include items such as goodwill

In accounting, the matching principle requires that the cost of any long-term asset is allocated to different accounting periods over its useful life. We call this allocation of costs, generally, "amortization." Amortization is a special concern when accounting for long-term assets. 

Depreciation: Depreciation is the term used specifically for the amortization of property, plant and equipment.

Depletion: Depletion is the term used specifically for the amortization of natural resource properties.

Amortization: Amortization traditionally refers to the amortization of costs for intangible assets. It is no used more generally to include depreciation and depletion. 

Categories within Accounting for Long-Term Assets

Intangible Assets

Postings: 42

Intangible assets have value based on the rights and privileges granted to the company using them, such as patents, copyrights, trademarks, trade secrets, franchise or license agreements, computer software, goodwill, and some development costs.

Natural Resources

Postings: 3

Natural resources are assets that are measured after acquisition based on depletion.

Eliminating Agency Problems

Please answer the question below and explain your reasoning. The CEO of Entitled Ltd. has been focused on increasing the size of the firm and maximizing current profits. Your friend, aware of your expertise in the field of finance, asks you if the CEO's actions are creating an agency problem, and if so, asks about options tha

Cost of Land

Which cost would be part of the cost of land? a) Putting up fencing around a building b) Removing an old building from the land c) Installing lights in a parking lot d) Installing a sprinkler system

Net asset value, rate of return, and mutual fund investment strategies

Net Asset Value, Rate of Return, and Mutual Fund Investment Strategies to Diversify Portfolio Part I: The net asset value (NAV) of the fund and rate of return to an investor in the fund are the two important concepts of mutual fund investment. Understanding the calculations of NAV and the rate of return are important to make

Asset Betas

What types of firms need to estimate industry asset betas? How would such a firm make the estimate? Describe the process step by step.

Asset Securitization Structures

As an assistant vice president at a regional bank, your boss has tasked you to acquire $100 million of residential mortgages to be securitized in a pass-through MBS. There must be between 250-300 mortgages in the portfolio, none of them with a maturity below 200 months or greater than 360 months. In the interest of time, your bo

Using Code Section 351 for Asset Protection

You can use section 351 for asset protection by exchange your assets for stock in a corporation. That asset is no longer at risk to your personal creditors. Is this true? Does it matter whether the transfer is to a C Corporation or an S Corporation?

Long-Term Asset

JK company has the following balances on the 2008 B/S: current assets = 70,000, long-term assets = 250,000, current liability = 40,000, long-term debt = 130,000, and stockholders equity = 150,000. The company has an operating lease contract. It promises to pay a lessor $10,000 annually for the next three years. The company's ave

Asset Carrying Amount

Spiro Corp uses the sum-f-the-years digits method to depreciate equipment purchased in January 1996 for 20,000. The estimated salvage value of the equipment is 2,000 and the estimated useful life is four years. What should Spiro report as the asset's carrying amount as of December 31, 1998? a) 1800 b) 2000 c) 3800 d) 450

Current vs, Long Term Assets

You are reviewing the balance sheet of Love's Industries, manufacturer of assorted electronic components. You observe the following account classifications. a. Accounts receivable b. Property, plant, and equipment c. Inventories d. Intangible assets e. Investment in marketable securities For each of the classificatio

Trade in asset for two situations

Community Bank recently traded in office fixtures. Here are the facts: Old fixtures Cost 96,000 Accumulated depreciation 65,000 New Fixtures a. Cash paid, 103,000 plus the old fixtures Requirements 1. Record Community Bank's trade-in of old fixtures for new ones. 2. Now let's change one fact an

Asset Impairment

Four years ago Omega Technology Inc., acquired a machine to use in its computer chip manufacturing operations at a cost of $35,000,000. The firm expected the machine to have a seven year useful life and a zero salvage value. The company has been using straight-line depreciation for the asset. Due to the rapid rate of technologic

Why are retained earnings not considered an asset of the firm?

2. Why are retained earnings not considered an asset of the firm? Answer 2. The retained earnings is not an asset because it is considered a liability to the firm. The retrained earnings is an amount of money that the firm is setting aside to pay stockholders is case of a sale out or buy out of the firm. The holdings do not in

Asset Classes Paper

Select a mutual fund and a Dow 30 organization. Determine asset classes for the mutual fund and compare its market performance to the Dow 30 organization. Explain how such classifications and the current investment environment affect decisions concerning portfolio composition.

U.S. Capital Markets Total Annual Returns

The following information is available concerning the historical risk and return relationships in the U.S. capital markets. U.S. Capital Markets Total Annual Returns Investment Category Arithmetic Mean Geometric Mean Standard Deviation Of Return Common stocks 10.28% 8.81% 16.9% Trea

Effective annual percentage cost of funds

Hello, below is a series of five (5) multiple choice exercises related to finance I'm still having difficulty using the TI BA Plus financial calculator, which I've just recently purchased. These exercises each week help to prepare the student for our weekly, heavily-weighted two hour quizzes. I generally attempt these exercises

Evaluate, compare, and contrast the asset allocation strategies

Evaluate, compare, and contrast the following asset allocation strategies: â?¢Integrated asset allocation â?¢Strategic asset allocation â?¢Tactical asset allocation Explain: â?¢Specify the goal of each asset allocation strategy. â?¢Describe the economic conditions that favor one strategy over another.

Net Salvage Value and Selling Price

If a used asset is liquidated for less than its remaining book value, its net salvage value (i.e., net cash flows from the liquidation) will be larger than the sales price. Is the statement true or false? Explain

The expected return on a two-asset portfolio

If the expected return on Stock 1 is 6%, and the expected return on Stock 2 is 20%, the expected return on a two-asset portfolio that holds 10% of its funds in Stock 1 and 90% in Stock 2 is A.11.52% B.13.00% C.18.60% D.19.14%

Reasons for internationally diversifying one's portfolio

What are some important reasons for internationally diversifying one's portfolio across asset classes? How could it affect the stabilization of returns and lowering of volatility? Provide examples of foreign markets and their associated risk level.

Two-Asset Portfolio

Stock A has an expected return of 12% and a standard deviation of 40%. Stock B has an expected return of 18% and a standard deviation of 60%. The correlation coefficient between Stocks A and B is 0.2. What are the expected returns and standard deviations of a portfolio invested 30% in Stock A and 70% in Stock B?

Determining Asset Classes for a Selected Mutual Fund

Select a mutual fund and a Dow 30 organization. Based on your selections, prepare a paper in which you determine the asset classes for your selected mutual fund and Dow 30 organization. In your paper, be sure to also explain how classifications (e.g. mutual fund, Dow 30) and the current investment environment impact organization

Expected return on a three-asset portfolio; Hennessy's portfolio risk

Textbook: Essentials of Investments Chapter 6 (1, 19, and 22) 1. A three-asset portfolio has the following characteristics: Asset Expected Return Standard Deviation Weight X 15% 22% 0.50 Y 10 8 0 .40 Z 6 3 0.10 What is the expected return on this three-asset portfolio? 19. The following figu

E8-6 Asset Disposal

Assume that Gonzalez Company purchased an asset on January 1, 2006, for $60,000. The asset had an estimated life of six years and an estimated residual value of $6,000. The company used the straight-line method to depreciate the asset. On July 1, 2008, the asset was sold for $40,000cash. Required: 1. Make the journal entry

Asset Replacement - Equivalent Annual Cost

Because of its age, your car costs $4000 annually in maintenance expense. You could replace it with a newer vehicle costing $8000. Both vehicles would be expected to last four more years. If your opportunity cost is 8%, by how much must maintenance expense decrease on the newer vehicle to justify its purchase?

Research and Development costs: asset or expense

1. In the United States, companies must charge expenditures for research and development directly to expense. In some other countries companies can recognize such cost as assets. Suppose you were a manager of a research and development department. Which method of accounting for research and development would be most consistent w

Average Real Annual Returns for the Following Asset Classes

Calculate the average real annual returns for each of the following asset classes using the information below: Series Mean of Annual Total Return (1926-2002) Large-company stocks 12.2% Long-term corporate bonds 6.2 Long-term government bonds 5.8 U.S. Treasury bills 3.8 Inflation 3.1 A. Large-com

Asset level: Firm Needs to Issue Additional Stock

A firm has $25 million in assets and its optimal capital structure is 60% equity. If the firm has $18 million in retained earnings, at what asset level will the firm need to issue additional stock? (Assume no growth in retained earnings).

Basis in a partnership: contribution of property

A taxpayer contributes property with an adjusted basis of $125,000 and a fair market value of $155,000 to her business entity. If the entity is a partnership and the transaction qualifies under § 721, the partnership's basis for the asset and the partner's basis for her partnership interest are: Asset Basis Interest Basis

Asset Beta

ABC Corporation is a firm with all-equity financing. Its equity beta .80. The treasury bill is 4$ and the market risk premium is expected to be at 10 percent. What is ABC's asset beta? What is its weighted average cost of capital? The firm is exempt from paying taxes?