Exam 10: Property, Plant, and Equipment; Goodwill; and Intangibles

A company's accountant capitalizes a payment that should be recorded as an expense. Which of the following is true?

A company purchased a used machine for $80,000. The machine required installation costs of $8,000 and insurance while in transit of $500. At which of the following amounts would the equipment be recorded?

The relative-fair-value method is the most conservative method of amortizing buildings and equipment.

Jane Browning purchased a tract of land and contracted with a builder to build an office building on the property. She also engaged other contractors for lighting, fencing, paving, etc. Based on the following transactions, determine the total costs allocated to the land, building, and land improvements accounts. a)Purchased land for $125,000. b)Paid a contractor $150,000 to design and build the office building. c)Paid a demolition company $20,000 to remove an old structure on the property. d)Paid $15,000 in delinquent taxes on the property. e)Paid $20,000 for fencing. f)Paid $10,000 for paving. g)Paid an electrical contractor $15,000 for outdoor lighting. Cost of land $\quad\quad\quad\quad\quad\quad ------$ Cost of building $\quad\quad\quad\quad\quad ------$ Cost of land improvements $\quad ------$

Goodwill has an indefinite life, so it is not amortized, but tested for impairment.

Amortization is a process of allocating the cost of an asset over its useful life.

Grubbs Company Ltd. acquired land and buildings for $1,350,000. The land is appraised at $475,000 and the buildings are appraised at $775,000. The debit to the buildings account will be:

Ronnie's Wings acquired equipment on January 1, 2019, for $300,000. The equipment had an estimated useful life of 10 years and an estimated salvage value of $25,000. On January 1, 2022, Ronnie's Wings revised the total useful life of the equipment to 12 years. Compute amortization expense for the year ended December 31, 2022, if Ronnie's Wings uses straight-line amortization.

When there is an exchange of assets, and no cash is paid, there will always be a gain or loss on disposal of property, plant, and equipment recorded.

Patents and copyrights are examples of:

Incorrectly treating a repair expenditure as a betterment:

The main ethical issue in accounting for property, plant, and equipment and intangible assets is whether to capitalize or expense a particular cost. Explain.

The cost of a building would include all of the following except:

Construction in progress is a current liability if the construction period is less than one year.

Talbert Company Ltd. purchased land, buildings, and equipment for $3,000,000. The land has been appraised at $865,000, the buildings at $1,175,000, and the equipment at $510,000. The land account will be debited for:

Multiplying the asset's book value by a constant percentage is the computation of amortization under:

Alpha Company Ltd. purchased equipment on January 1, 2019, for $250,000. The estimated residual value is $25,000 and the estimated useful life is 15 years. Alpha Company Ltd. uses straight-line method to amortize all property, plant and equipment. On January 1, 2022, Alpha Company Ltd. revised the useful life to be a total of 10 years from date of acquisition. Prepare the journal entry to record amortization on December 31, 2022. Round to the nearest dollar if necessary.

Intangible assets are generally amortized using an accelerated method over 40 years or less.

In an exchange transaction commercial substance exists when the cash flows from the new asset received are similar in risk, timing and amount to the asset being exchanged.

In a lump-sum purchase of assets, the total cost of the assets is divided among the assets according to their relative market values.