Chapter 10

Which of the following is not a major characteristic of a plant asset? Yields services over a number of years Acquired for resale Possesses physical substance Acquired for use

The only major characteristic of property, plant and equipment shown below is they are long-term in nature. they lack physical substance. they are acquired for resale. they are always subject to depreciation.

Which one of the following is not a characteristic of property, plant, and equipment? All of the options are characteristics. They are acquired for use in operations. They are long-term in nature and are always subject to depreciation. They possess physical substance

Plant assets may properly include none of these. land held for possible use as a future plant site. deposits on machinery not yet received. idle equipment awaiting sale.

Boutique Suites Hotel Corporation recently purchased Rodeo Resort and the land on which it is located with the plan to tear down the Rodeo Resort and build a new luxury hotel on the site. Boutique Suites Hotel Corporation salvaged fixtures and wood flooring from Rodeo Resort prior to demolishing the building. The proceeds from the sale of the salvaged materials should be recognized as revenue in the period of the sale. recorded as a reduction of the cost of the new hotel. recognized as an extraordinary gain in the year the hotel is torn down. recorded as a reduction of the cost of the land.

The cost of buildings should include all of the following except: overhead costs incurred during construction. building permits. costs of removing an old building on the new building site. excavation costs.

The cost of land includes all of the following except purchase price. cost of fencing and lighting. payments to clear liens. cost of leveling and grading.

Special assessments for local improvements, such as pavements, street lights, sewers, and drainage systems, are usually charged to what account? Betterments. Land. Land Improvements. Building Improvements.

The cost of property acquired by the issuance of securities is equal to: the book value of the property acquired. the par value of the securities. the original cost of the securities. the market value of the securities.

The cost of manufacturing equipment would include all of the following except: installation costs. purchase price reduced by any discount taken. freight costs. cost of training the equipment operator.

Alix Company purchased equipment for $35,000. Sales tax on the purchase was $350. Other costs incurred were freight charges of $400, insurance during shipping of $ 75, repairs of $650 for damage during installation, and installation costs of $525. What is the cost of the equipment? $35,000 $35,750 $36,350 $37,000

Which of the following costs are capitalized for self-constructed assets? Materials, labor, and overhead Materials and labor only Labor and overhead only Materials and overhead only

During self-construction of an asset by Francoise Company, the following were among the costs incurred: Fixed overhead for the year $1,230,000 Portion of $1,000,000 fixed overhead that would be allocated to asset if it were normal production 33,000 Variable overhead attributable to self-construction 29,000 What amount of overhead should be included in the cost of the self-constructed asset? $ -0- $33,000 $62,000 $29,000

Overhead costs related to self-constructed assets are accounted for by: assigning a portion of all overhead to the asset. assigning a pro rata portion of fixed overhead to the asset. assigning no fixed overhead to the asset. allocating overhead on the basis of lost production.

The period of time during which interest must be capitalized ends when the activities that are necessary to get the asset ready for its intended use have begun. no further interest cost is being incurred. the asset is substantially complete and ready for its intended use. the asset is abandoned, sold, or fully depreciated.

The approach for interest costs incurred during construction recommended under GAAP is to: capitalize a pro rata portion of all costs of funds employed. capitalize no interest charges during construction. charge construction with all costs of funds employed, whether identifiable or not. capitalize the lesser of actual interest cost for the period or the amount of interest cost incurred during the period that the company could have avoided if expenditures for the asset had not been made.

Which of the following is one of the conditions that must be present for the capitalization period of interest to begin? Activities necessary to get the asset ready for its intended use must be known. Expenditures for the asset must be budgeted. The construction period must occur in the current accounting period. Interest costs are being incurred.

Which of the following statements is true regarding capitalization of interest? When excess borrowed funds not immediately needed for construction are temporarily invested, any interest earned should be offset against interest cost incurred when determining the amount of interest cost to be capitalized. Interest cost capitalized in connection with the purchase of land to be used as a building site should be debited to the land account and not to the building account. The amount of interest cost capitalized during the period should not exceed the actual interest cost incurred. The minimum amount of interest to be capitalized is determined by multiplying a weighted average interest rate by the amount of average accumulated expenditures on qualifying assets during the period.

The interest rate(s) used in computing avoidable interest is the: weighted average rate incurred on all other outstanding debt. lower of the rate incurred on specific borrowings or the weighted average rate. rate incurred on specific borrowings. rate incurred on specific borrowings for the weighted-average expenditures equal to the specific borrowings and the weighted average rate of other borrowings for the excess expenditures.

The interest capitalization period ends when: the asset is substantially complete and ready for its intended use. activities to get the asset ready for its intended use are in progress. expenditures for the asset are being made. interest cost is no longer being incurred.

A plant site donated by a township to a manufacturer that plans to open a new factory should be recorded on the manufacturer's books at one dollar (since the site cost nothing but should be included in the balance sheet). the nominal cost of taking title to it. the value assigned to it by the company's directors. its market value.

Losses on exchanges of nonmonetary assets are: recognized only on exchanges that lack commercial substance. recognized in the period of the exchange. never recognized. recognized only on exchanges that have commercial substance.

Zoum Company sold manufacturing equipment with a cost of $88,000 and accumulated depreciation of $64,000 for $19,000. The journal entry to record this transaction will include: a debit to a loss account for $5,000. a credit to Accumulated Depreciation - Equipment for $64,000. a credit to a gain account for $4,000. a credit to the Equipment account for $24,000.

A nonmonetary asset acquired in an exchange that has commercial substance is usually recorded at the: book value of the asset given up. book value of the asset received. fair value of the asset given up, unless fair value of the asset received is more clearly evident. fair value of the asset received.

Plant assets purchased in exchange for a zero-interest-bearing note should be accounted for at the: present value of the note. book value of the asset received. face value of the note. fair value of the asset received.

In an exchange that lacks commercial substance in which a gain exists and cash is received, the asset received is recorded at the: fair value of the asset given up less cash received. book value of the asset given up less the deferred portion of the gain. book value of the asset given up less cash received. fair value of the asset received less the deferred portion of the gain.

Crompton Company purchased land and a building for a lump sum cost of $210,000. The land has a fair market value of $80,000 and the building has a fair market value of $160,000. The cost assigned to the land is $80,000. $0. $105,000. $70,000.

In an exchange of nonmonetary assets that has commercial substance, when no cash is involved, the new asset is valued at: the fair value of the new asset plus the gain deferred. the fair value of the new asset. the book value of the old asset plus the gain deferred. the book value of the old asset.

Property received through a contribution is to be recognized at its fair market value and offset with a credit entry to a: Additional Paid-in Capital account. Contribution Revenue account. Miscellaneous Gain account. Paid-in Capital account.

The gain recognized in an exchange that lacks commercial substance and in which cash is received is computed by multiplying the total gain by the formula of: cash received divided by the total of cash received plus fair value of the asset received. cash paid divided by the total of cash paid plus fair value of the asset given up. cash received divided by the total of cash received plus fair value of the asset given up. cash paid divided by the total of cash paid plus fair value of the asset received.

In an exchange of nonmonetary assets that lacks commercial substance in which a gain exists and no cash is paid or received, the asset received is recorded at: fair value of the asset given up less the deferred gain. book value of the asset received less the gain deferred. fair value of the asset received more than the gain deferred. book value of the asset given up plus the deferred gain.

Assets acquired in a lump sum purchase should be recorded at their: relative book value. appraised value. relative fair market values. fair market value.

Grambling Company exchanged equipment that cost $66,000 and has accumulated depreciation of $30,000 for equipment with a fair value of $48,000 and received $12,000 cash. The exchange lacked commercial substance. The gain to be recognized from the exchange is $6,000 gain. $18,000 gain. $24,000 gain. $4,800 gain.

On September 10, 2012, AMX Printing Co. incurred the following costs for one of its printing presses: Purchase of attachment $55,000 Installation of attachment 5,000 Replacement parts for renovation of press 18,000 Labor and overhead in connection with renovation of press 7,000 Neither the attachment nor the renovation increased the estimated useful life of the press. However, the renovation resulted in significantly increased productivity. What amount of the costs should be capitalized? $78,000. $0. $85,000. $67,000.

Which of the following is not a capital expenditure with regard to a manufacturing facility? Expanding the building by adding a new wing Replacing the heating system with a more energy efficient model Painting the exterior of the building Replacing the air conditioning system with a similar unit

Expenditures that extend the useful life of a plant asset without improving its quantity or quality are accounted for: by debiting Accumulated Depreciation. as improvements. as additions. by debiting the asset account.

The sale of a depreciable asset resulting in a loss indicates that the proceeds from the sale were greater than book value. less than book value. less than current market value. greater than cost.

Brick Company purchased machinery for $320,000 on January 1, 2008. Straight-line depreciation has been recorded based on a $20,000 salvage value and a 5-year useful life. The machinery was sold on May 1, 2012 at a gain of $6,000. How much cash did Brick receive from the sale of the machinery? $46,000. $86,000. $66,000. $54,000.

Burton Company sold equipment with a cost of $55,000 and accumulated depreciation of $32,000 for $27,000. The journal entry to record this transaction will include: a credit to Accumulated Depreciation - Equipment for $32,000. a credit to a gain account for $4,000. a debit to a loss account for $28,000. a credit to the Equipment account for $23,000.

All of the following are true regarding the revaluation model allowed under IFRS except: once selected, the revaluation policy applies to an entire class of property, plant, and equipment. revaluations must be made regularly to ensure that the carrying value is not materially different from fair value. after initial recognition, the revalued amount is fair value less subsequent depreciation and impairment losses. when an asset is revalued, any increase in carrying amount is reported as miscellaneous revenue.