Financial Accounting: An Integrated Statements Approach, 2nd Edition

Chapter 9 Fixed Assets and Intangible Assets 401

The Cost of Fixed Assets

The costs of acquiring fixed assets include all amounts spent to position and prepare

the asset for use. For example, freight costs and the costs of installing equipment are

added to the purchase price in determining the equipment’s total cost.

Exhibit 3 summarizes some of the common costs of acquiring fixed assets. These

costs should be recorded by debiting the related fixed asset account, such as Land,^1

Building, Land Improvements, or Machinery and Equipment.

Exhibit 2

Classifying Costs

Investment

yes no

Is the purchased

item long-lived?

Is the asset used in a

productive purpose?

Expense

yes no

Fixed Assets

Fixed Assets as Barriers to Competition

HOW BUSINESSES MAKE MONEY

One of the largest hotel complexes built in the United States is
the new Gaylord Texan Resort & Convention Center outside of
Dallas, Texas. The hotel has over 2.5 million square
feet with 1,500 rooms and 150 acres and boasts
a staff of 2,000. The hotel was built and is oper-
ated by Gaylord Entertainment Co.Following
Gaylord’s highly successful Grand Ole Opry hotel
concept in Nashville, the hotel is designed to place
all resort amenities under one roof, including restau-
rants, shopping, and entertainment. Texan Resort
promotes a Texas theme, complete with saddle
barstools, longhorn steers, Lone Star symbols, and
a San Antonio Riverwalk representation. The com-
pany builds these massive projects primarily to attract large
conventions. “What they are doing is taking the Las Vegas

model and doing it in other cities,” says one analyst. The ho-

tel costs around $480 million to build. Unlike most hotel com-

panies, Gaylord develops and builds the properties

on its own. Such a large price tag helps keep the

competition away. As noted by one analyst, “It re-

quires $500 million of capital—that immediately

eliminates most hotel developers around the world.”

As a result, Gaylord is able to use the size of the

project as a strategic barrier, which allows the com-

pany to acquire and operate prime hotel locations

without threat of rivals.

Source:Ryan Chittum, “What’s Not Big at the Texan Hotel? Tourists.”

August 11, 2004, The Wall Street Journal, p. B1.

1 As discussed here, land is assumed to be used only as a location or site and not for its mineral deposits

or other natural resources.