Ch. 10 – Plant, Property, Equipment and IntangiblesI.TYPES OF .docx

Ch. 10 – Plant, Property, Equipment and Intangibles
I.
TYPES OF LONG-LIVED ASSETS
A.
Characteristics of Plant, Property & Equipment
· Used in normal operations, not for resale or investment
· Long-term in nature (>1 yr. useful life)
· Possess physical substance (tangible in nature)
· Examples: Land, Building, Equip, Machinery,
Furniture/Fixtures, Leasehold Improvements, Wasting Assets
(i.e. natural resources)
B.
Characteristics of Intangibles:
1. Lack physical substance
2. Provide future benefit (increases the revenue-producing
ability of the company)
3.
They are not financial instruments.
Typical intangibles:
1.
Patents – legal life of 20 years from date granted. Legal fees
for the successful defense of a patent are treated as a capital
expenditure and added to the BV of the patent when
incurred…not expensed.
2.
Copyrights – legal life is life of creator + 70 yrs.
3.
Customer Lists – usually 3 year life

4.
Franchises/Licenses/Permits – amortize over term of contract
5.
Trademarks/Trade names – indefinite # of renewals for periods
of 10 yrs. (don’t amortize)
6.
Goodwill – indefinite life (do not amortize). Only occurs as a
result of one company buying an entire other company.
Goodwill represents the excess of the purchase price over the
FMV of the Net Assets. (Net Assets = FMV Assets less all
liabilities of the company purchased.) Goodwill is not a
separately identifiable asset. It derives its value from the other
assets that the company uses to produce earnings in excess of
normal.
II.
Determining Original Cost
PP&E and intangibles can be acquired individually, lump sum
purchase, using deferred payments, issuance of securities, by
donation, thru exchange or self-construction
Historical cost is the usual basis for PP&E valuation.
Costs to Include in “Original Cost”:
· All costs incurred to bring the asset into its productive
capacity
· Acquisition cost = cash paid or “cash equivalent value” (PV of
note) + all costs of readying the asset for service.
Advantages of Historical Cost:
· Cost = Fair Value on date of acquisition
· Cost is reliable, objective & verifiable
· Cost is consistent with reporting most other assets, liabilities

& equity
A.
Land - don’t depreciate - never “used up”
Cost = all expenditures made to acquire the land and make
ready for intended use
Costs to capitalize:
Purchase price
+
Closing Costs/Attorney’s fees/Title fees/Broker’s
commissions/past due property taxes
+ Cost of surveys
+
Costs to get the land ready for use (clear existing structures,
level land)
(-)
Proceeds from sale of salvage
=
Historical Cost of Land
B. Land Improvements - Improvements with limited lives (like
private driveways, parking lots, fences, sprinkler systems etc.)

record as Land Improvements and depreciate separately.
C. Machinery -
· all expenditures normally incurred in acquiring the equipment
and preparing it for use are included
· this includes purchase price less purchase discounts (if
offered; regardless if taken), freight charges, insurance while in
transit, assembly costs, installation, special preparation of
facilities, and the cost of conducting trial runs
Example:
Devon Company purchases a machine with a contract price of
$100,000 on terms of 2/10, n/30. The company does not take
the cash discount. Transportation costs of $2,500 were
incurred, as well as installation and testing costs of $3,000.
Sales tax is 7% of invoice price. During the installation,
uninsured damages of $500 are incurred and paid by Devon.
Determine the original cost of the machine and record the
journal entry.
D.
Buildings - costs to capitalize for either purchase or
construction include:
· all expenditures related directly to acquisition are capitalized
· this includes attorneys' and architects' fees, building permits,
and all costs incurred beginning with architects fees and the
excavation of the site and ending with completion of the
building
1. If Purchased –Contract price + Renovation costs (before bldg
is placed into service)+Closing Costs + Unpaid Property Taxes
2.

If Constructed:
Capitalize:
Contract Price from Contractor
+
Architectural Fees, Attorney Fees, Building Permits
+
Excavation costs
+
Interest Costs during Construction (i.e. capitalized interest)
=
Cost of building
E.
Self-Constructed Assets – PP&E intended for the company’s
own use.
· The critical accounting issue is identifying the “cost” of the
self-constructed asset. Two difficulties arise in assigning costs

to self-constructed assets:
1. Determining the amount of the company’s indirect
manufacturing costs (OHD), to be allocated to construction
2. Deciding the proper treatment of interest incurred during
construction.
1. Fixed Manufacturing Overhead Costs: Options for treating
Fixed Overhead:
(a)
Assign only incremental overhead to the cost of the constructed
asset. The asset’s cost would include only those additional
costs incurred because of the decision to self-construct.
(b)
Allocate overhead on the basis of production. Full Cost
Approach (i.e. apply the same fixed OHD rate as allocated to
inventory). This method is preferred.
2. Interest Costs during construction - Capitalize interest on
long-term projects as a necessary cost to bring asset into its
intended use. Only capitalize interest incurred during the
construction period.
· Note: the cost recorded for a constructed asset can never
exceed the price charged by an outside contractor
III.
Capitalization of Interest (Adds to the Costs of asset, but
include interest only During Construction)
Capitalize interest on long-term projects as a necessary cost to
bring asset into its intended use. Achieves proper matching of
expired costs in future periods as asset is depreciated or once
sold as COGS.
A. Qualifying Assets:
a. Assets under construction for the company’s own use
(building/plant/machinery)
b. Assets intended for sale/lease once construction is complete
(i.e. long-term construction projects such as ships or real estate

developments)
*Inventories that are routinely manufactured (short-term mftr.
Cycle) are NOT eligible for interest capitalization.
B. Capitalization Period:
Start capitalizing interest when:
a. Expenditure has been made
b. Construction activities have begun.
c. Interest is being incurred.
· Stop capitalizing interest when the asset is complete & ready
for its intended use.
C.Amount of Interest to Capitalize:
Limited to the lower of:
1.
Actual Interest Costs incurred during the period (on all debt)
or
2.
Avoidable Interest - interest costs that could have been avoided
if expenditures for asset had not been made.
D.
Average Accumulated Expenditures (WAE):
Interest should be determined for only the construction

expenditures actually incurred during the capitalization period.
Unless all expenditures are made at the outset of the
construction (rarely!), it is necessary to determine the weighted
average* amount outstanding during the construction period.
The Weighted Average Expenditures (WAE) are the MAX
construction costs eligible for interest capitalization.
*weighted by the # mos. each expenditure is outstanding &
incurring interest.
If expenditures are incurred evenly throughout the year, then:
[Beg. Cumulative Expenditures + End. Cum. Expenditures] / 2 =
WAE
E.
Interest Rates to Use: USING THE SPECIFIC INTEREST
METHOD ONLY!
1.
If specific borrowings, use that rate first
(as long as the amount borrowed) < average accumulated
expenditures)
2. If asset cost > specific borrowings, then interest on excess
costs is based on a weighted average of all the interest rates on
all non-specific borrowings.
Special issues related to interest capitalization.
-
Interest costs incurred in the purchase of land to be used for a
building site are part of the building's cost (not the land’s cost).
-
Interest costs incurred on land being developed for lot sales are
part of the land's cost and included in inventory.
-

Interest revenue earned on funds borrowed to finance
construction of assets is not netted against the interest expense
incurred.
Example:
How to compute weighted avg. cost of capital & the lower of
actual interest vs. avoidable interest.
ABC Co. is constructing a building at a cost of $300,000. They
begin construction on Jan. 1, 2012 and complete it on Dec. 31,
2012. On Jan. 1, 2012, ABC borrowed $150,000 for this project
at 11% interest. In addition, they have other long-term
borrowing that consists of a $100,000, 9% Note Payable and
$400,000, 10% Bond Payable. ABC made payments for the
expenditures for this building as follows:
Jan 1
$ 60,000
Mar 1
$ 75,000
Jul 1
$ 70,000
Sept. 1
$ 45,000

Dec. 31
$ 50,000
Step 1:
Determine Weighted Average Expenditures (WAE):
Step 2:
Determine weighted avg. cost of Non-Specific Borrowings (This
step is only necessary IF more than one “other debt”:
Step 3: Determine Avoidable Interest on WAE & Compare to
Actual Interest:
Interest to Capitalize
Interest Exp on CY Income Statement
Cost of Building
Example:Capitalization of Interest – Partial Year for
Construction Period
Sparky constructs a new building costing $2 million. Sparky
begins it on April 1, 2012 by paying the following expenditures
April 1
June 1Oct. 1Dec. 31
$500,000 $600,000
$700,000
$200,000
The building was complete on December 31. On Jan. 1, 2012
the company borrowed $800,000 for this project at 15% interest.
In addition, they have $3,000,000 in long-term borrowings at an
average interest rate of 12.5%.
Step 1:

Determine WAE’s eligible for interest capitalization:
Step 2:
Determine avoidable interest (i.e. how much interest should be
added to cost of building)
Determine the following:
a.
Cost of Building:
$_____________
b.
Interest Expense for ’12:
$_____________
c.
If Sparky had only $50,000 of
non-specific borrowing, how
much interest should be capitalized?
$_____________
Example: Expenditures incurred evenly throughout the year.
Winston Company constructs a building during 2012 that
qualifies for interest capitalization. The construction begins on
January 1, 2012, the cost is $1,400,000, and expenditures occur
evenly throughout the year. The construction was completed on
December 31. On March 1, the company borrowed $750,000 at
10% for the project. The total interest on the company’s other
debt is $72,000, and the total of the other debt (non-specific
borrowings) is $600,000.

a.
Determine the cost of the building.
$_______________
b.
Determine interest expense for 2012.
$_______________
IV.Valuation of Long-Lived Fixed Assets
Rule:
An asset should be recorded at the fair value of what is given up
or at the fair value of the asset received, whichever is more
clearly evident. This represents the cash equivalent value of
what a willing participant would settle for today.
A. Cash Discounts – Discounts off the selling price to
encourage prompt payment.
Terms 2/10; net 30. Always record the asset net of “Cash
Discounts.” Better indicator of “Fair Value”
B. Deferred Payment Contracts
Fair Value = Present value of consideration given.
Example:
On January 1, 2012, ABC Corp. purchased equipment by giving
a $20,000 cash down payment and issuing a $150,000 non-
interest-bearing note, payable in three payments of $50,000
each made at the end of each year for the next 3 years. Imputed
interest = 12%.
PVOA (12%, 3n)

2.401831
Example:
On January 1, 2012, Prosser Company acquired used equipment
by issuing a two-year, non-interest-bearing note for $200,000.
In recent borrowing, Prosser has paid 10% interest.
On January 7, the company installed the equipment. Estimated
costs of installation were $1,750 for labor and $670 for
materials. On January 12, the company paid $780 for freight
and insurance charges during shipment. The company plans to
depreciate the asset over 8 years, straight-line method, no
salvage. Interest is recognized by the effective interest method.
Required:
a. determine the historical cost of the asset
b. determine depreciation expense
c. determine interest expense for 2012
PV of $1(10%, 2n)
.82645
Lump Sum Purchases (Group Purchase)
Allocate the Total Cost of the group purchase on the basis of
each asset’s relative fair value.
1. If cash paid > Fair Value; record at Fair Value (excess is
Goodwill)
2. If cash paid < Fair Value; record using weighted avg. method
to find orig. cost.
Fair Values - Use insurance appraisals, property tax
assessments, or independent appraisals as indicators of relative

market values
Example: Cash paid for group purchase is LESS than Fair
Value. Weighted Average Approach
On July 6 Zone Company acquired the plant assets of
Doonesbury Company, which had discontinued operations.
Zone paid $2,100,000 for this group purchase. The appraised
value of the property is:
Land
$ 400,000
Building
1,200,000
Machinery
800,000
Total
$2,400,000
Determine the Original Cost of each asset acquired:
Issuance of Stock in Exchange for Asset
Bring on the asset at:
1. The fair value of the stock (if the stock is traded daily and
the market price is known.)
2. The fair value (appraised value) of the asset, if the market

price of the stock is not readily determinable.
Example (1):
Fred Couples Company issued 13,000 shares of common stock
with a par value of $50 per share in exchange for land. The
property has been appraised at a fair value of $810,000. The
stock of Fred Couples Company is listed on the NYSE and at
yesterday’s close traded at $60 per share.
Example (2):
Same as above EXCEPT Fred Couples Company stock is not
listed on any exchange, but a block of 100 shares was sold by a
stockholder 12 months ago at $65 per share, and a block of 200
shares was sold by another stockholder 18 months ago at $58
per share.
Valuation of Intangibles: Costs to capitalize:
a. If purchased – capitalize all costs at Fair Value of everything
given up (purchase price, legal fees, incidental expenses.)
b.
If internally created –capitalize only direct costs incurred to
establish the legal rights associated with it. Legal fees,
registration fees, design costs, etc…but never R&D.
*Research & Development costs are expensed as incurred
(follows asset measurement principle and matching.)
GOODWILL
1. Can only be identified w/ business as a whole

2. Only recorded when business is purchased
3. Valuation of Goodwill is based on Going Concern Concept
(value of Goodwill cannot be separated from the business as a
whole.)
4. Internally generated goodwill is expensed when incurred.
Goodwill is -
is a condition that contributes to the earning power of a firm:
To Record -
Purchase Price > FMV of Net Assets [FMV Assets -
FMV Liabilities]
|______________________|
= Goodwill
RESEARCH & DEVELOPMENT
R& D is:
1. Research: To discover new knowledge for significantly
improved product/process
2. Development: translation of knowledge into new
Design/product/process
A. Treatment of R&D costs:
Expense most R&D costs as incurred based on:
1. Asset measurement principle - to be considered an asset, it
must generate a future benefit (revenue). Too much uncertainty
about whether or not the cost incurred today will ever generate
a future benefit. Therefore cannot follow matching.

2. Conservatism
B. Costs to expense as R&D -
1. Material, Equip, Facilities – expense in period incurred IF
no alternative future use. If they do have alternative future use,
depreciate over useful life but expense as R&D Expense.
2. R&D Personnel (salaries & wages) – expense as incurred
3. Intangibles purchased from others- expense unless they have
alternative future uses
4. Contract services – if others are hired to perform R&D,
expense as incurred
5. Indirect costs – must be clearly related to the R&D.
6. Purchased R&D –capitalize cost. In future periods,
accounting for Purchased R&D depends on if the
research/development was successful or not.
Example:
Thomas More Company incurred the following costs during
2012 in connection with its research and development activities.
Cost of equipment acquired that will have alternative
Uses in future R&D projects over the next 5 years
(s-l depreciation)

$280,000
Materials consumed in R&D projects
59,000
Consulting fees paid to outsiders for R&D Projects
100,000
Personnel costs of persons involved in R&D projects
128,000
Indirect costs reasonably allocable to R&D projects
50,000
Materials purchased for future R&D projects
34,000
Compute the amount to be reported as research and development
expense by More on its income statement for 2012. Assume
equipment is purchased at beginning of year.
VI.
SALE & EXCHANGE OF FIXED ASSETS

A.
Sale of Asset
To Record:
Example:
Sold machine for $7,500 on June 30, 2012. The machine was
purchased on Jan 1, 2010 for $12,000, $2,000 salvage, 5-year
life, S-L depr.
B.
Involuntary Conversions
Asset’s service is terminated early due to a casualty
(fire/theft/accident) or condemnation.
Example:
On December 31, 2012, Britt, Inc. has a machine with a book
value of $940,000. The original cost and related accumulated
depreciation at this date are as follows:
Machine
$ 1,300,000

Accum. Depr.
360,000
Book Value
$ 940,000
Depreciation is computed at $60,000 per year on a straight-line
basis.
On August 31, 2013, a fire completely destroys the machine.
An insurance settlement of $430,000 was received for this
casualty. Assume the settlement was received immediately.
Record the disposal:
C. Exchanges of Non-monetary Assets
Non-monetary exchanges mean you are trading one asset for
another asset (i.e. a delivery truck for a machine). Monetary
consideration (i.e. cash or note payable) can still be part of the
exchange, but to receive the accounting treatment of
“Exchanges of Non-monetary Assets”, the cash/note pay must
be less than 25% of the Fair Value of the assets exchanged.
The rules of an exchange are based on:
· The fair value of the asset(s) given up, or
· The fair value of the asset(s) received, whichever is clearly
more evident.

A gain or loss on the exchange on nonmonetary assets is
computed by comparing the book value of the asset given up
with the fair value of that same asset
Losses - immediately recognize losses on all exchanges
Gains - The rules for gain recognition depend upon whether
the non-monetary exchange has commercial substance.
Commercial Substance –if the future cash flows generated by
the asset will change as a result of the non-monetary exchange,
then the transaction has commercial substance.
Example:
a. An exchange of trucks with different useful lives changes the
future cash flows; Has commercial substance (recognize all
gains and losses immediately)
b. An exchange of trucks with no significant difference in
useful lives; lacks commercial substance (recognize losses
immediately, not necessarily gains)
c. An exchange of Land for Equipment; has commercial
substance; recognize all gain/losses immediately.
Types of Exchange:
1. Has Commercial Substance –
· The asset received should be recorded at fair value of the
asset(s) given up, and
· Recognize gain or loss immediately
Example:
New Asset = FMV(Old) + Cash Paid/note pay

or (-) Cash Received
To Calculate Gain/Loss:
If
FMV(Old) > BV (Old) = Gain
FMV(Old) < BV(Old) = Loss
Example #1:Exchange Has Commercial Substance; Cash is
being paid.
ABC Co. exchanged equipment with an orig. cost of $54,000
and Accum. Depr. of $12,000 for land. The Fair Value of the
old asset (equipment) was $40,000. Also, ABC paid $6,000
cash. The exchange has commercial substance.
Example #2: Exchange has Commercial Substance; Cash is
being RECEIVED.
ABC Co. exchanged equipment with an orig. cost of $64,000
and Accum. Depr. of $20,000 for equipment that performed the
same function, but offered cost savings. The Fair Value of the
new asset is $42,000. Also, ABC received $7,000 cash. The
exchange has commercial substance.
2)
Lacks Commercial Substance - Economic position of company

did not change as
a result of the exchange.. Nogains, only losses recognized
(unless cash is received)
a. Lacks Commercial Substance – No cash received
· Asset received is recorded at Book value of asset(s) given up
plus the cash paid, or
· Fair value of Asset received less the deferred gain
· The cash paid is less than 25% of the transaction. (If the cash
paid is greater than 25% of the transaction, it is considered a
“monetary” transaction.)
Example: Lacks Substance, Cash is being paid.
XYZ trades its old machine with an orig. cost of $15,000,
Accum. Depr. of $6,000 for a similar new model. XYZ also
paid $3,000. The new model has a fair value of $14,500. The
exchange lacks commercial substance.
Example: Lacks Substance, Cash is being paid.
You exchange a fixed asset whose orig. cost was $150,000,
Accum. Depr = $15,000 for a similar asset with a fair value of
$170,000 and also pay $10,000 in cash. The exchange lacks
commercial substance.
b.
Lacks Commercial Substance, Gain Situation & Cash Received:
Recognize a portion of the gain. When boot is received, it is
assumed that part of old asset was sold & part was exchanged.
(Cash received is less than 25% of the transaction.)
Total Gain =
Recognized
Gain =

Book Value
Sold =
New Asset
Hist Cost =
Example:
You exchange a fixed asset with cost of $200,000, Accum.
Depr. of $64,000 for a similar fixed asset with a Fair Value of
$160,000 and $10,000 cash is received. The exchange lacks
commercial substance.
VII.
CONTRIBUTIONS
A. Non-Reciprocal Transfers –
Transfers of assets in one direction. The company is either
receiving or giving a gift (i.e. asset or forgiveness of debt.)
Contributions Received:
Even though no “Cost” is involved (in receiving the asset), use
the FMV of asset to capitalize on books.
Record as “Contribution Revenue” in the period received. The
benefit is considered “earned”.
Example:
In Bryan, Texas, Sanderson Farms received a parcel of land
with a FMV of $250,000 from the Bryan Economic
Development Corp. in return for a promise to build a new

processing plant. The original cost of the land to the BEDC was
$100,000.
Entry for Sanderson:
Entry for Bryan EDC:
Contributions given – Record gift as “Contribution Expense” at
FMV of asset given up. Recognize gain/loss (the earnings
process is complete on that asset.)
When to record:
· If the promise to give the asset is “conditional” – record in
period the asset is transferred.
· If the promise is “Unconditional” – record in the current
period.
II.
the Huxleyan Warning
There are two ways by which the spirit of a culture may be
shriveled. In
the first--the Orwellian--culture becomes a prison. In the
second--the
Huxleyan--culture becomes a burlesque. No one needs to be
reminded that our world is now marred by many prison-cultures
whose structure Orwell described accurately in his
parables. If one were to read both 1984 and Animal Farm, and
then for good measure, Arthur Koestler's Darkness at Noon, one
would have a fairly precise blueprint of the machinery of
thought-control as it currently operates in scores of countries
and on millions of people. Of course, Orwell was not the first to
teach us about the spiritual
devastations of tyranny. What is irreplaceable about his work is
his insistence that it makes little difference if our wardens are
inspired by right- or left-wing ideologies. the gates of the

prison are equally impenetrable, surveillance equally rigorous,
icon-worship equally pervasive. What Huxley teaches is that in
the age of advanced technology, spiritual devastation is more
likely to come from an enemy with a smiling face
than from one whose countenance exudes suspicion and hate. In
the Huxleyan prophecy, Big Brother does not watch us, by his
choice." We watch him, by ours. There is no need for wardens
or gates or Ministries of Truth. When a population becomes
distracted by trivia, when cultural life is redefined as a
perpetual round of entertainments, when serious public
conversation becomes a form of baby-talk, when, in short, a
people become an audience and their public business a
vaudeville act, then a nation finds itself at risk; culture-death is
a clear possibility. In America, Orwell's prophecies are of small
relevance, but Huxley's are well under way toward being
realized. For America is engaged in the world's most ambitious
experiment to accommodate itself to the technological
distractions made possible by the electric plug. This is an
experiment that began slowly and modestly in the mid-
nineteenth century and has now, in the latter half of the
twentieth, reached a perverse maturity in America's consuming
love-affair with television. As nowhere else in the world,
Americans have moved far and fast in bringing to a close the
age of the slow-moving printed word, and have granted to
television sovereignty over all of their institutions. By ushering
in
the Age of Television, America has given the world the clearest
available glimpse of the Huxleyan future. Those who speak
about this matter must often raise their voices to a
near-hysterical pitch, inviting the charge that they are
everything from wimps to public nuisances to Jeremiahs. But
they do so because what they want others to see appears benign,
when it is not invisible altogether. An Orwellian world is much
easier to recognize, and to oppose, than a Huxleyan. Everything
in our background has prepared us to know and resist a prison
when the gates begin to close around us. We are not

likely, for example, to be indifferent to the voices of the
Sakharovs and the Timmermans and the Walesas. We take arms
against such a sea of troubles, buttressed by the spirit of Milton,
Bacon, Voltaire, Goethe and Jefferson. But what if there are no
cries of anguish to be heard? Who is prepared to take arms
against a sea of amusements? To whom do we complain, and
when, and in what tone of voice, when serious discourse
dissolves into giggles? What is the antidote to a culture's being
drained by laughter?
I fear that our philosophers have given us no guidance in this
matter. Their warnings have customarily been directed against
those
consciously formulated ideologies that appeal to the worst
tendencies in human nature. But what is happening in America
is not the design of an articulated ideology. No Mein Kampf or
Communist Manifesto announced its coming. It comes as the
unintended consequence of a dramatic change in our modes of
public conversation. But it is an ideology nonetheless, for it
imposes a way of life, a set of relations among people and
ideas, about which there has been no consensus, no discussion
and no
opposition. Only compliance. Public consciousness has not yet
assimilated the point that technology is ideology. This, in spite
of the fact that before our very eyes technology has altered
every aspect of life in America during the past eighty years. For
example, it would have been excusable in 1905 for us to be
unprepared for the cultural
changes the automobile would bring. Who could have suspected
then that the automobile would tell us how we were to conduct
our social and sexual lives? Would reorient our ideas about
what to do with our forests and cities? Would create new ways
of expressing our personal identity and social standing? But it is
much later in the game now, and ignorance of the score is
inexcusable. To be unaware that a technology comes equipped
with a program for social change, to maintain that technology is
neutral, to make the assumption that technology is always a

friend to culture is, at
this late hour, stupidity plain and simple. Moreover, we have
seen enough by now to know that technological changes in our
modes of communication are even more ideology-laden than
changes in our modes of transportation. Introduce the alphabet
to a culture and you change its cognitive habits, its social
relations, its notions of community,
history and religion. Introduce the printing press with movable
type, and you do the same. Introduce speed-of-light
transmission of images and you make a cultural revolution.
Without a vote. Without polemics. Without guerrilla resistance.
Here is ideology, pure if not serene. Here is ideology without
words, and all the more powerful for their absence. All that is
required to make it stick is a population that devoutly believes
in the inevitability of progress. And in this sense, all Americans
are
Marxists, for we believe nothing if not that history is moving us
toward some preordained paradise and that technology is the
force behind that movement. Thus, there are near
insurmountable difficulties for anyone who has written such a
book as this, and who wishes to end it with some remedies for
the affliction. In the first place, not everyone believes a cure is
needed, and in the second, there probably isn't any. But as a
true-blue American who has imbibed the unshakable belief that
where there is a problem, there must be a solution, I shall
conclude with the following suggestions. We must, as a start,
not delude ourselves with preposterous notions such as the
straight Luddite position as outlined, for example, in Jerry
Mander's Four Arguments for the Elimination of Television.
Americans will not shut down any part of their
technological apparatus, and to suggest that they do so is to
make no suggestion at all. It is almost equally unrealistic to
expect that nontrivial modifications in the availability of media
will ever be made. Many civilized nations limit by law the
amount of hours television may operate and thereby mitigate the
role television plays in public life. But I believe that this is not

a possibility in America. Once having opened the Happy
Medium to full public view, we are not likely to countenance
even its partial closing. Still, some Americans have been
thinking along these lines. As I write, a story appears in the
New York Times (September 27, 1984) about the plans of the
Farmington, Connecticut, Library Council to sponsor a "TV
Turnoff." It appears that
such an effort was made the previous year, the idea being to get
people
to stop watching television for one month. the Times reports
that the
turnoff the previous January was widely noted by the media.
Ms. Ellen
Babcock, whose family participated, is quoted as saying, "It
will be interesting to see if the impact is the same this year as
last year, when we had terrific media coverage." In other words,
Ms. Babcock hopes that by watching television, people will
learn that they ought to stop watching television. It is hard to
imagine that Ms. Babcock does not see the irony in this
position. It is an irony that I have confronted many times in
being told that I must appear on television to promote a book
that warns people against television. Such are the contradictions
of a television-based culture. In any case, of how much help is a
one-month turnoff?. It is a mere pittance; that is to say, a
penance. How comforting it must be when the folks in
Farmington are done with their punishment and can return to
their true occupation. Nonetheless, one applauds their effort, as
one must applaud the efforts of those who see some relief in
limiting certain kinds of content on television-for example,
excessive violence, commercials on children's shows, etc. I am
particularly fond of John Lindsay's suggestion that political
commercials be banned from television as we now ban cigarette
and liquor commercials. I would gladly testify before the
Federal Communications Commission as to the manifold merits
of this excellent idea. To those who would oppose my testimony
by claiming that such a ban is a clear

violation of the First Amendment, I would offer a compromise:
Require all political commercials to be preceded by a short
statement to the effect that common sense has determined that
watching political commercials is hazardous to the intellectual
health of the community. I am not very optimistic about
anyone's taking this suggestion seriously.
Neither do I put much stock in proposals to improve the quality
of television programs. Television, as I have implied earlier,
serves us most usefully when presenting junk-entertainment; it
serves us most ill when it co-opts serious modes of discourse--
news, politics, science, education, commerce, religion--and
turns them into entertainment
packages. We would all be better off if television got worse, not
better.
"the A-Team" and "Cheers" are no threat to our public health. "
Minutes," "Eye-Witness News" and "Sesame Street" are. the
problem, in any case, does not reside in what people watch. The
problem is in that we watch. the solution must be found in how
we
watch. For I believe it may fairly be said that we have yet to
learn what television is. And the reason is that there has been
no worthwhile discussion, let alone widespread public
understanding, of what information is and how it gives direction
to a culture. There is a
certain poignancy in this, since there are no people who more
frequently and enthusiastically use such phrases as "the
information age," "the information explosion," and "the
information society." We have apparently advanced to the point
where we have grasped the idea that a change in the forms,
volume, speed and context of information means something, but
we have not got any further. What is information? Or more
precisely, what are information? What are its various forms?
What conceptions of intelligence, wisdom and learning does
each form insist upon? What conceptions does each form
neglect or mock? What are the main psychic effects of each
form? What

is the relation between information and reason? What is the
kind of information that best facilitates thinking? Is there a
moral bias to each information form? What does it mean to say
that there is too much information? How would one know? What
redefinitions of important cultural meanings do new sources,
speeds, contexts and forms of
information require? Does television, for example, give a new
meaning to "piety," to "patriotism," to "privacy"? Does
television give a new meaning to "judgment" or to
"understanding"? How do different forms of information
persuade? Is a newspaper's "public" different from television's
"public"? How do different information forms dictate the type
of content that is expressed? These questions, and dozens more
like them, are the means through which it might be possible for
Americans to begin talking back to their television sets, to use
Nicholas Johnson's phrase. For no medium is excessively
dangerous if its users understand what its dangers are. It is not
important that those who ask the questions arrive at my answers
or Marshall McLuhan's (quite different
answers, by the way). This is an instance in which the asking of
the questions is sufficient. To ask is to break the spell. To
which I might add that questions about the psychic, political
and social effects of information are as applicable to the
computer as to television. Although I believe the computer to be
a vastly overrated technology, I
mention it here because, clearly, Americans have accorded it
their customary mindless inattention; which means they will use
it as they are told, without a whimper. Thus, a central thesis of
computer technology--that the principal difficulty we have in
solving problems stems from insufficient data--will go
unexamined. Until, years from now,
when it will be noticed that the massive collection and speed-
of-light retrieval of data have been of great value to large-scale
organizations but have solved very little of importance to most
people and have created at least as many problems for them as
they may have solved. In any case, the point I am trying to

make is that only through a deep and unfailing awareness of the
structure and effects of information, through a demystification
of media, is there any hope of our gaining some measure of
control over television, or the computer, or any other medium.
How is such media consciousness to be achieved? There are
only two answers that come to mind, one of which is nonsense
and can be dismissed almost at once; the other is desperate but
it is all we have.
the nonsensical answer is to create television programs whose
intent would be, not to get people to stop watching television
but to demonstrate how television ought to be viewed, to show
how television recreates and degrades our conception of news,
political debate, religious thought, etc. I imagine such
demonstrations would of
necessity take the form of parodies, along the lines of "Saturday
Night Live" and "Monty Python," the idea being to induce a
nationwide horse laugh over television's control of public
discourse. But, naturally, television would have the last laugh.
In order to command an audience large enough to make a
difference, one would have to make the programs vastly
amusing, in the television style. Thus, the act of criticism itself
would, in the end, be co-opted by television. the parodists
would become celebrities, would star in movies, and would end
up making television commercials. the desperate answer is to
rely on the only mass medium of communication that, in theory,
is capable of addressing the problem: our schools. This is the
conventional American solution to all dangerous social
problems, and is, of course, based on a naive and mystical faith
in the efficacy of education. the process rarely works. In the
matter at hand, there is even less reason than usual to expect it
to. Our schools have not yet even got around to examining the
role of the printed word in shaping our culture. Indeed, you will
not find two high school seniors in a hundred who could tell
you--within a five-hundred-year margin of error--when the
alphabet was invented. I suspect most do not even know
that the alphabet was invented. I have found that when the

question is
put to them, they appear puzzled, as if one had asked, When
were trees invented, or clouds? It is the very principle of myth,
as Roland Barthes pointed out, that it transforms history into
nature, and to ask of our schools that they engage in the task of
demythologizing media is to ask something the schools have
never done. And yet there is reason to suppose that the situation
is not hopeless. Educators are not unaware of the effects of
television on their students. Stimulated by the arrival of the
computer, they discuss it a great deal--which is to say, they
have become somewhat "media conscious." It is true enough
that much of their consciousness centers on the question, How
can we use television (or the computer, or word processor) to
control education? They have not yet got to the question, How
can we use education to control television (or the computer, or
word processor)? But our reach for solutions ought to exceed
our present grasp, or what's our dreaming for? Besides, it is an
acknowledged task
of the schools to assist the young in learning how to interpret
the symbols of their culture. That this task should now require
that they learn how to distance themselves from their forms of
information is not so bizarre an enterprise that we cannot hope
for its inclusion in the curriculum; even hope that it will be
placed at the center of education.
What I suggest here as a solution is what Aldous Huxley
suggested, as well. And I can do no better than he. He believed
with H. G. Wells that we are in a race between education and
disaster, and he wrote continuously about the necessity of our
understanding the politics and epistemology of media. For in
the end, he was trying to tell us that what afflicted the people in
Brave New World was not that they were laughing instead of
thinking, but that they did not know what they were laughing
about and why they had stopped thinking.

Take Test: Q9-CH10
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Content
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Instructions
Description
Non-Monetary Exchanges. This quiz will close at 11:00 PM on
Friday, June 21st. You will be given (2) attempts to complete
this quiz and your highest grade will be reported in the grade
book. The solutions will become available on Blackboard at
11:00 PM after the assessment closes.
Instructions
Multiple Attempts
This Test allows 2 attempts. This is attempt number 1.
Force Completion
This Test can be saved and resumed later.
Question Completion Status:
Question 1
1.
Use the following information to answer the next (6) questions:
Turkey Inc. is trading a machine which had cost $70,000 and
had accumulated depreciation of $40,000 for another fixed
asset. For each of the following independent situations,
determine the amount to be capitalized for the new fixed asset
that Turkey is acquiring and the gain or loss to be recognized at
the time of the exchange. *If there is a gain record your answer
as a positive number; if there is a loss, record your answer in
parenthesis (). If there is NO gain or loss, type in NE.
Capitalized Cost of New Asset
$ Gain/Loss

1. Turkey traded the old machine for a newer machine with a
fair value of $45,000 and received $5,000 on the exchange. The
exchange has commercial substance.
$_blank 1 __
$_blank_2__
2. Same as #1, except the exchange lacks commercial
substance.
$_blank_3__
$__blank_4_
3. Same as #1 except the exchange lacks commercial substance;
and instead of receiving cash, Turkey paid $4,000 cash.
$_blank_5__
$_blank_6_
a. For scenario #1, Determine the original cost of the new
machine that Turkey should record on its balance sheet on the
day of the exchange. $[Blank_1]
Answer
1 points
Question 2
1.
Using the information presented in #1 above, answer the
following:
b) For scenario #1, determine the Gain or Loss that Turkey
should report on their Income Statement as a result of this
exchange:
$[Blank_2]
Answer
0.5 points
Question 3
1.

following:
c. For scenario #2, determine the original cost of the new asset
Turkey should report on their balance sheet after this exchange:
$[Blank_3]
Answer
1 points
Question 4
1.
following:
c. For scenario #2, determine the Gain/Loss Turkey should
report on their income statement as a result of this exchange:
$[Blank_4]
Answer
1 points
Question 5
1.
following:
c. For scenario #3, determine the original cost of the new asset
Turkey should report on their balance sheet after this exchange:
$[Blank_5]
Answer
1 points
Question 6
1.
following:
c. For scenario #3, determine the Gain/Loss thatTurkey should
report on their income statement as a result of this exchange:
$[Blank_6]

Answer
0.5 points
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