What is the applicability of the historical cost principle to plant assets?
How do you determine the cost of an asset? Land? Building? Equipment?
(a) What is salvage value?
(b) Is salvage value used in determining periodic depreciation under each depreciation method?
Compare and contrast the straight-line method, double declining method and the units-of-activity method
Distinguish between revenue expenditures and capital expenditures during useful life.
How is a gain or loss on the sale of a plant asset computed?
What are natural resources, and what are their distinguishing characteristics? What is depletion?
What are intangible assets, and what are their distinguishing characteristics? What is amortization?
What are the similarities and differences between the terms depreciation, depletion, and amortization?
You are comparing two companies in the same industry. You have determined that Ace Corp. depreciates its plant assets over a 40-year life, whereas Liu Corp. depreciates its plant assets over a 20-year life.
Discuss the implications this has for comparing the results of the two companies.
Comment on the usefulness of these ratios:
1. current ratio
2. Receivable turnover
3. inventory turnover ratio
4. Debt to total assets
5. times interest earned ratio
6. return on common stockholders' equity ratio
7. Profit margin ratio
8. Gross profit rate
9. earnings per share
10. Price to earnings, PE ratio
2. How do you calculate each ratio?