Question 1

Which question must be considered at the initial recognition of property,plant and equipment?

Accepted Answer

A) How the costs that have been capitalized should be categorized or classified in the balance sheet? 
B) Whether the historical cost or fair value model should be used? 
C) Whether the straight-line or double-declining balance method should be used? 
D) How the property,plant and equipment should be tested for impairment? 
A) How the costs that have been capitalized should be categorized or classified in the balance sheet? 
B) Whether the historical cost or fair value model should be used? 
C) Whether the straight-line or double-declining balance method should be used? 
D) How the property,plant and equipment should be tested for impairment?

Question 2

At December 31,2018,the following data were available for a building owned by Omega Company:
   
A small room was built on the back of the building at a cost of $45,000.The room was completed on June 30,2019 and was used as office space commencing July 2,2019.The company uses straight-line depreciation,and accounts for partial years using the number of months the asset is available for use.
Required:
How much is the impact of this expenditure on income before taxes for 2019?

Accepted Answer

The office should be depreciat

Question 3

What costs should be capitalized to "land"?

Accepted Answer

A) Construction permits. 
B) Engineering surveys. 
C) Property transfer tax. 
D) Interest during construction. 
A) Construction permits. 
B) Engineering surveys. 
C) Property transfer tax. 
D) Interest during construction.

Question 4

Explain why it is necessary to separate property,plant and equipment (PPE)items into separate components.

Accepted Answer

•In order to capitalize costs in PPE,it

Question 5

Every three years a major component (part #45)in a machine must be replaced.By doing this regular but expensive repair the machine can be used for 15 years.If Part #45 were not replaced,the machine could be used only for a maximum of six years.When the machine was originally purchased for $5,000,000 it was set up as two components: the machine was depreciated over its estimated useful life of 15 years and Part #45 was recognized as a separate PPE asset and depreciated over three years.
Recently this repair was completed at a cost of $700,000 for Part #45.The earlier Part #45 cost $550,000 when it was installed three years ago.Neither the old nor the new Part #45 has any residual value.
Prepare the necessary journal entries to record the transaction.Provide a short justification for your chosen treatment.

Accepted Answer

A new Part #45 may be capitalized and th

Question 6

What is the meaning of "entry value"?

Accepted Answer

A) The cost required to replace the productive capacity of an asset. 
B) The value of an asset in an input market or output market on the date of measurement. 
C) The value expected from the sale of an asset,net of any costs of disposal. 
D) The actual cost of an asset at the time it was purchased. 
A) The cost required to replace the productive capacity of an asset. 
B) The value of an asset in an input market or output market on the date of measurement. 
C) The value expected from the sale of an asset,net of any costs of disposal. 
D) The actual cost of an asset at the time it was purchased.

Question 7

On January 1,2017,a machine was purchased for $12,000.The machine was estimated to have a 10 year useful life and a residual value of $500.Straight-line depreciation is to be used.On January 1,2019,the machine was then exchanged for computer equipment with a fair value of $10,000.Assuming that the exchange had commercial substance,how much would be recorded as a gain on disposal of the machine on January 1,2019?

Accepted Answer

A) $0 
B) $300 
C) $400 
D) $500 
A) $0 
B) $300 
C) $400 
D) $500

Question 8

Mathew Corp exchanged similar assets with Simone Company in a transaction with commercial substance.Mathew gave up equipment that had a net book value of $47,000 (fair value $49,000)and Simone exchanged equipment with a net book value of $36,000 (fair value $35,000).What is the correct value at which Mathew should record the new equipment?

Accepted Answer

A) $35,000 
B) $36,000 
C) $47,000 
D) $49,000 
A) $35,000 
B) $36,000 
C) $47,000 
D) $49,000

Question 9

Scandsia Ltd.owns a machine that it purchased on Jan 1,2016 for $750,000.The machine had an estimated useful life of 5 years and an estimated residual value of $50,000.The company uses straight-line depreciation and records monthly depreciation.The machine was sold on December 31,2019 for $200,000.What is the carrying value (net book value)at the date of sale?

Accepted Answer

A) $10,000 
B) $150,000 
C) $190,000 
D) $560,000 
A) $10,000 
B) $150,000 
C) $190,000 
D) $560,000

Question 10

Seneca Valley owns a machine that it purchased on Jan 1,2016 for $600,000.The machine had an estimated useful life of 10 years and an estimated residual value of $100,000.The company uses the double-declining balance method.The machine was sold on December 31,2018 for $140,000.What is the depreciation rate for 2016?

Accepted Answer

A) 10% 
B) 20% 
C) 40% 
D) Any of the above can be used. 
A) 10% 
B) 20% 
C) 40% 
D) Any of the above can be used.

Question 11

What is the meaning of "declining balance method"?

Accepted Answer

A) The systematic allocation of an asset's depreciable amount allocated in proportion to the productive capacity used. 
B) The systematic allocation of an asset's depreciable amount allocated evenly over the asset's estimated useful life. 
C) The systematic allocation of an asset's depreciable amount over its estimated useful life. 
D) The systematic allocation of an asset's depreciable amount whereby a period's depreciation equals the asset's net carrying amount multiplied by a fixed percentage. 
A) The systematic allocation of an asset's depreciable amount allocated in proportion to the productive capacity used. 
B) The systematic allocation of an asset's depreciable amount allocated evenly over the asset's estimated useful life. 
C) The systematic allocation of an asset's depreciable amount over its estimated useful life. 
D) The systematic allocation of an asset's depreciable amount whereby a period's depreciation equals the asset's net carrying amount multiplied by a fixed percentage.

Question 12

What is the meaning of "exit value"?

Accepted Answer

A) The cost required to replace the productive capacity of an asset. 
B) The value of an asset in an input market or output market on the date of measurement. 
C) The value expected from the sale of an asset,net of any costs of disposal. 
D) The actual cost of an asset at the time it was purchased. 
A) The cost required to replace the productive capacity of an asset. 
B) The value of an asset in an input market or output market on the date of measurement. 
C) The value expected from the sale of an asset,net of any costs of disposal. 
D) The actual cost of an asset at the time it was purchased.

Question 13

Plastic Moulds purchased equipment on January 1,2015 for $275,000.It was estimated that the equipment would have a residual value of $25,000 at the end of its useful life.The asset's useful life was estimated at 5 years or 10,000 units of output.The company has a December 31 year end.Additional information:
 
Assuming the company uses the units-of-production depreciation method,what is the depreciation rate per unit for 2015?

Accepted Answer

A) $25.00 
B) $27.50 
C) $57,750 
D) $52,500 
A) $25.00 
B) $27.50 
C) $57,750 
D) $52,500

Question 14

The following entry was recorded by Alex Corp.:
 
What is the effect of this entry on the financial statements?

Accepted Answer

A) Current assets decreased by $80,000. 
B) Net assets decreased by $20,000. 
C) Net PPE decreased by $130,000. 
D) Income decreased by $30,000. 
A) Current assets decreased by $80,000. 
B) Net assets decreased by $20,000. 
C) Net PPE decreased by $130,000. 
D) Income decreased by $30,000.

Question 15

Praguian Company built two similar buildings.Each building took one year to build and required $30,000,000 in construction costs.The Company had limited internal financial resources,so it could fund only Building A internally and financed Building B by borrowing the $30,000,000 evenly over the year (i.e. ,zero at the beginning and increasing to $30 million by the end of the year).The interest rate on the loan is 10%.Both projects were finished on December 31,2018 and were ready for occupancy immediately.The buildings are estimated to have a useful life of 20 years and no residual value.The Company uses the straight-line method for depreciation.
Required:
a.How much interest cost can be capitalized on Building B?
b.What will be the annual depreciation expense for each of the two buildings?
c.ASPE allows interest capitalization while IFRS recommends capitalization of interest on construction-specific loans.Ignoring the complexities of how to determine how much interest to capitalize,which treatment of interest costs is conceptually more correct? Explain your conclusion.
d.Why can interest costs not continue to be capitalized after the self-construction period is completed?

Accepted Answer

a.(30 million / 2)× 10%
= $1,500,000
b.A

Question 16

Ceila Manufacturing purchased equipment on January 1,2018 for $275,000.It was estimated that the equipment would have a residual value of $25,000 at the end of its useful life.The asset's useful life was estimated at 5 years or 10,000 units of output.The company has a December 31 year end.Assuming the company uses the double-declining-balance depreciation method,what is the depreciation expense for 2018?

Accepted Answer

A) $50,000 
B) $55,000 
C) $100,000 
D) $110,000 
A) $50,000 
B) $55,000 
C) $100,000 
D) $110,000

Question 17

Aye Corp acquired land and a building on June 1,2019 for $13,000,000.An expert in real estate appraisal estimates that the land is worth 40% of the total purchase price.The building is estimated to have a useful life of 25 years and a residual value of $450,000.On September 1,2029,Aye moved and sold the property for $17,000,000.The buyer and seller agreed that 50% of the proceeds should be allocated to land.Aye depreciates buildings using the straight-line method,and has a December 31 year-end.Aye records partial depreciation in the year of acquisition or disposal based on the number of months the asset is available for use in the year.
Prepare the entry to record the purchase on June 1,2019,depreciation expense for 2019 and
2020,and all entries required to record the disposal of the property on September 1,2029.

Accepted Answer

The answer of Aye Corp acquired land and a building...

Question 18

A large lathe was bought on January 1,2019 for $15,000,000.It was expected to last for 12 years and have a residual value of $300,000.The company uses straight-line depreciation.At the beginning of 2024,the remaining useful life of the lathe was revised to be four more years (for nine years in total).Management also felt that all equipment should now be depreciated using the declining balance method at a 25% rate.The company has a December 31 year-end.
Required: Prepare the entries to record depreciation for 2019 and 2024.

Accepted Answer

Straight-line with s

Question 19

FeelGood Corp.purchased equipment on January 1,2017 for $275,000.It was estimated that the equipment would have a residual value of $25,000 at the end of its useful life.The asset's useful life was estimated at 5 years or 10,000 units of output.The company has a December 31 year end.Assuming the double-declining-balance depreciation method is used,what is the net book value (carrying value)of the asset on December 31,2018?

Accepted Answer

A) $66,000 
B) $99,000 
C) $110,000 
D) $165,000 
A) $66,000 
B) $99,000 
C) $110,000 
D) $165,000

Question 20

The following entry was recorded by Williams Inc.:
 
What is the effect of this entry on the financial statements?

Accepted Answer

A) Current assets increased by $57,000. 
B) Net assets increased by $10,000. 
C) Income decreased by $33,000. 
D) Long-term assets increased by $100,000. 
A) Current assets increased by $57,000. 
B) Net assets increased by $10,000. 
C) Income decreased by $33,000. 
D) Long-term assets increased by $100,000.

Which question must be considered at the initial recognition of property,plant and equipment?

What costs should be capitalized to "land"?

Explain why it is necessary to separate property,plant and equipment (PPE)items into separate components.

What is the meaning of "entry value"?

What is the meaning of "declining balance method"?

What is the meaning of "exit value"?

The following entry was recorded by Alex Corp.: What is the effect of this entry on the financial statements?

The following entry was recorded by Williams Inc.: What is the effect of this entry on the financial statements?

Fundamentals of Financial Accounting Theory

Conceptual Frameworks for Financial Reporting

Accrual Accounting

Revenue and Recognition

Cash and Receivables

Inventories

Financial Assets

Intangible Assets, goodwill, mineral Resources, and Government Grants

Applications of Fair Value to Non-Current Assets

Filters

Exam 8: Property, plant and Equipment

Which question must be considered at the initial recognition of property,plant and equipment?

What costs should be capitalized to "land"?

Explain why it is necessary to separate property,plant and equipment (PPE)items into separate components.

What is the meaning of "entry value"?

What is the meaning of "declining balance method"?

What is the meaning of "exit value"?

The following entry was recorded by Alex Corp.: What is the effect of this entry on the financial statements?

The following entry was recorded by Williams Inc.: What is the effect of this entry on the financial statements?

Fundamentals of Financial Accounting Theory

Conceptual Frameworks for Financial Reporting

Accrual Accounting

Revenue and Recognition

Cash and Receivables

Inventories

Financial Assets

Intangible Assets, goodwill, mineral Resources, and Government Grants

Applications of Fair Value to Non-Current Assets

Filters