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1、Chapter9335CHAPTER9DISCUSSIONQUESTIONSChapter93351.Themajorcharacteristicsofproperty,plant,andequipmentareasfollows:a.Theyarephysicalobjectsthatcanbeseenandtouched.b.Theyareusedinoperationstoproducegoodsorprovideservices.c.Theyusuallyhaveausefullifeoftwoormoreyears.2.Moneyhasatimeval
2、uebecausemoneytodaycanbeinvestedandearninterestinthefuture.Becauseofthistimevalue,paymentsmadeinthefuturemustbediscountedtotheirpresentvalues.Forexample,assumethatacompanythathas$200todayhastopaythatmoneyforloanpayments,$100todayand$100intwoyears.The$100thatdoesn’thavetobepaidfortwoy
3、earscanbeinvestedtoearninterestfortwoyears.Theamountitaccumulatesto,say,$120,isgreaterthanthe$100thatmustbepaid.Sincethepresentvalueofthe$120is$100today,thepresentvalueofthe$100tobepaidintwoyearsmustbelessthan$100.3.Anyexpenditureincurredintheprocessofbringinganassettooperatingcondit
4、ionisconsideredtobenefitthecompanyovertheasset’susefullifeandthereforeistreatedaspartoftheasset’scost.Inadditiontothepurchaseprice,thecostofacapitalizedasset,suchasamachine,mightincludesalestax,deliverycharges,andsetupcosts.4.Whenaleasingtransactionhascharacteristicsofapurchase,itwil
5、lbetreatedinthesamemannerasthepurchaseofanassetifitmeetscriteriaestablishedbytheaccountingprofessionforacapitallease.Iftheleasedoesnotmeetthecriteria,itwillbetreatedasasimplerentalagreement(anoperatinglease).Underacapitallease,theleasedassetsarerecordedandreportedonthelessee’sbalance
6、sheetalongwiththerelatedliabilitytothelessor(owneroftheproperty).Thesubstanceofatransaction,notitsform,shoulddeterminetheaccountingtreatment.5.Interestexpenseisincludedinthecostofthebuilding(capitalized)becauseitisasmuchacostofthebuildingasisthecostofthematerials.Ifthecompanyhadpurch
7、asedthebuildingfromsomeoneelse,thepriceofthebuildingwouldincludeinterestpaidbythecompanythatconstructedthebuilding.Withoutborrowingthemoneyandincurringinterestexpense,thebuildingcouldn’tbebuilt.6.Thefairmarketvaluesoftheassetsacquiredareconsideredthebestrelativemeasureoffutureservice
8、potentialsof