Exam 10: Acquisition and Disposition of Property, Plant, and Equipment

To be consistent with the historical cost principle, overhead costs incurred by an enterprise constructing its own building should be

Reed Co.exchanged nonmonetary assets with Wilton Co.No cash was exchanged and the exchange had no commercial substance.The carrying amount of the asset surrendered by Reed exceeded both the fair value of the asset received and Wilton's carrying amount of that asset.Reed should recognize the difference between the carrying amount of the asset it surrendered and

Assets purchased on long-term credit contracts should be recorded at the present value of the consideration exchanged.

Use the following information for questions Two independent companies, Mintz Co.and Pine Co., are in the home building business.Each owns a tract of land held for development, but each would prefer to build on the other's land.They agree to exchange their land.An appraiser was hired, and from her report and the companies' records, the following information was obtained: Mintz's Land Pine's Land Cost and book value \ 192,000 \ 120,000 Fair value based upon appraisal 240,000 210,000 The exchange was made, and based on the difference in appraised fair values, Pine paid $30,000 to Mintz.The exchange lacked commercial substance. -For financial reporting purposes, Mintz should recognize a pre-tax gain on this exchange of

In accounting for plant assets, which of the following outlays made subsequent to acquisition should be fully expensed in the period the expenditure is made?

Assets under construction for a company's own use do not qualify for interest cost capitalization.

Cotton Hotel Corporation recently purchased Holiday Hotel and the land on which it is located with the plan to tear down the Holiday Hotel and build a new luxury hotel on the site.The cost of the Holiday Hotel should be

Petty County owned an idle parcel of real estate consisting of land and a factory building.Petty gave title to this realty to Larson Co.as an incentive for Larson to establish manufacturing operations in the County.Larson paid nothing for this realty, which had a fair market value of $250,000 at the date of the grant.Larson should record this nonmonetary transaction as a

For a nonmonetary exchange of plant assets, accounting recognition should not be given to

During 2007, Gannon Co.incurred average accumulated expenditures of $400,000 during construction of assets that qualified for capitalization of interest.The only debt outstanding during 2007 was a $500,000, 10%, 5-year note payable dated January 1, 2005.What is the amount of interest that should be capitalized by Gannon during 2007?

In order for a cost to be capitalized (capital expenditure), the following must be present:

The King-Kong Corporation exchanges one plant asset for a similar plant asset and gives cash in the exchange.The exchange is not expected to cause a material change in the future cash flows for either entity.If a gain on the disposal of the old asset is indicated, the gain will

Which of the following costs are capitalized for self-constructed assets?

On December 1, Wynne Corporation exchanged 2,000 shares of its $25 par value common stock held in treasury for a parcel of land to be held for a future plant site.The treasury shares were acquired by Wynne at a cost of $40 per share, and on the exchange date the common shares of Wynne had a fair market value of $50 per share.Wynne received $6,000 for selling scrap when an existing building on the property was removed from the site.Based on these facts, the land should be capitalized at

Use the following information for questions A machine cost $120,000, has annual depreciation of $20,000, and has accumulated depreciation of $90,000 on December 31, 2006.On April 1, 2007, when the machine has a market value of $27,500, it is exchanged for a machine with a fair value of $135,000 and the proper amount of cash is paid.The exchange lacked commercial substance. -The new machine should be recorded at

When land with an old building is purchased as a future building site, the cost of removing the old building is part of the cost of the new building.

During self-construction of an asset by Jannero Pargo Company, the following were among the costs incurred: Fixed overhead for the year \1 ,000,000 Portion of \ 1,000,000 fixed overhead that would be allocated to asset if it were normal production 40,000 Variable overhead attributable to self-construction 35,000 What amount of overhead should be included in the cost of the self-constructed asset?

Avoidable interest is the amount of interest cost that a company could theoretically avoid if it had not made expenditures for the asset.

Jeter Company purchased a new machine on May 1, 1998 for $176,000.At the time of acquisition, the machine was estimated to have a useful life of ten years and an estimated salvage value of $8,000.The company has recorded monthly depreciation using the straight-line method.On March 1, 2007, the machine was sold for $24,000.What should be the loss recognized from the sale of the machine?

When computing the amount of interest cost to be capitalized, the concept of "avoidable interest" refers to