Question 1

During 2014, Bass Corporation constructed assets costing $3,000,000. The weighted-average accumulated expenditures on these assets during 2014 was $1,800,000. To help pay for construction, $1,320,000 was borrowed at 10% on January 1, 2014, and funds not needed for construction were temporarily invested in short-term securities, yielding $27,000 in interest revenue. Other than the construction funds borrowed, the only other debt outstanding during the year was a $1,500,000, 10-year, 9% note payable dated January 1, 2008. What is the amount of interest that should be capitalized by Bass during 2014?

Accepted Answer

A)  $180,000. 
B)  $90,000. 
C)  $175,200. 
D)  $283,200.

Question 2

Which of the following statements about involuntary conversions is false?

Accepted Answer

A)  An involuntary conversion may result from condemnation or fire. 
B)  The gain or loss from an involuntary conversion may be reported as an extraordinary item. 
C)  The gain or loss from an involuntary conversion should not be recognized when the enterprise reinvests in replacement assets. 
D)  All of these answers are correct.

Question 3

Danson Company, a company who uses IFRS reporting standards, has a non-current asset that has been classified as held-for-sale. When the asset no longer meets this definition, Danson should

Accepted Answer

A)  remove the asset from the statement of financial position. 
B)  remeasure the asset at fair value. 
C)  measure the asset at the lower of its carrying value before it was classified as held-for-sale and its recoverable amount at the date when the company decided not to sell it. 
D)  leave the non-current asset on the financial statements at the current carrying value.

Question 4

Miller Company, a company who uses IFRS reporting standards, sells a non-current asset classified as held-for-sale. Which of the following statements is true regarding the treatment of a gain on a subsequent increase in the fair value less cost?

Accepted Answer

A)  The gain should not be recognized. 
B)  The gain should be recognized in full in the income statement. 
C)  The gain should be recognized but only in retained earnings. 
D)  The gain should be recognized to the extent that it is not in excess of the cumulative impairment loss that has been recognized.

Question 5

Use the following information for questions 78 through 80.
On March 1, 2014, Newton Company purchased land for an office site by paying $1,800,000 cash. Newton began construction on the office building on March 1. The following expenditures were incurred for construction:  The office was completed and ready for occupancy on July 1. To help pay for construction, and purchase of land $2,400,000 was borrowed on March 1, 2014 on a 9%, 3-year note payable. Other than the construction note, the only debt outstanding during 2014 was a $1,000,000, 12%, 6-year note payable dated January 1, 2014.
-The actual interest cost incurred during 2014 was

Accepted Answer

A)  $300,000. 
B)  $336,000. 
C)  $168,000. 
D)  $280,000.

Question 6

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

Accepted Answer

A)  the nominal cost of taking title to it. 
B)  its fair value. 
C)  one dollar (since the site cost nothing but should be included in the balance sheet). 
D)  the value assigned to it by the company's directors.

Question 7

Consider each of the items below. Place the proper letter in the blank space provided to indicate the nature of the account or accounts to be debited when recording each transaction using the preferred accounting treatment. Prepayments should be recorded in balance sheet accounts. Disregard income tax considerations unless instructed otherwise.
-Lambert Company recorded the first year’s interest on 6% $100,000 ten-year bonds sold a year ago at 94. The bonds were sold in order to finance the construction of a hydroelectric plant. Six months after the sale of the bonds, the construction of the hydroelectric plant was completed and operations were begun. (Only cash interest, and not discount amortization, is to be considered.)

Accepted Answer

A) asset(s) only 
B) accumulated amortization, depletion, or depreciation only 
C) expense only 
D) asset(s) and expense 
E) some other account or combination of accounts

Question 8

Gutierrez Company is constructing a building. Construction began in 2014 and the building was completed 12/31/14. Gutierrez made payments to the construction company of $2,500,000 on 7/1, $5,500,000 on 9/1, and $5,000,000 on 12/31. Weighted-average accumulated expenditures were

Accepted Answer

A)  $2,625,000. 
B)  $3,083,333. 
C)  $8,000,000. 
D)  $13,000,000.

Question 9

Land was purchased to be used as the site for the construction of a plant. A building on the property was sold and removed by the buyer so that construction on the plant could begin. The proceeds from the sale of the building should be

Accepted Answer

A)  classified as other income. 
B)  deducted from the cost of the land. 
C)  netted against the costs to clear the land and expensed as incurred. 
D)  netted against the costs to clear the land and amortized over the life of the plant.

Question 10

On April 1, Mooney Corporation purchased for $1,624,500 a tract of land on which a warehouse and office building was located. The following data were collected concerning the property:  What are the appropriate amounts that Mooney should record for the land, warehouse, and office building, respectively?

Accepted Answer

A)  Land, $560,000; warehouse, $360,000; office building, $680,000. 
B)  Land, $600,000; warehouse, $400,000; office building, $800,000. 
C)  Land, $568,575; warehouse, $365,513; office building, $345,206. 
D)  Land, $541,500; warehouse, $361,000; office building, $722,000.

Question 11

Use the following information for questions 108 and 109.
A machine cost $600,000, has annual depreciation of $100,000, and has accumulated depreciation of $450,000 on December 31, 2014. On April 1, 2015, when the machine has a fair value of $137,500, it is exchanged for a machine with a fair value of $675,000 and the proper amount of cash is paid. The exchange had commercial substance.
-The gain to be recorded on the exchange is

Accepted Answer

A)  $0. 
B)  $12,500 
C)  $25,000 
D)  $75,000

Question 12

Hardin Company received $80,000 in cash and a used computer with a fair value of $240,000 from Page Corporation for Hardin Company's existing computer having a fair value of $320,000 and an undepreciated cost of $300,000 recorded on its books. The transaction has no commercial substance. How much gain should Hardin recognize on this exchange, and at what amount should the acquired computer be recorded, respectively?

Accepted Answer

A)  $0 and $220,000 
B)  $1,537 and $221,537 
C)  $20,000 and $240,000 
D)  $80,000 and $300,000

Question 13

Use the following information to answer questions 92 & 93.
Below is the information relative to an exchange of assets by Stanton Company. The exchange lacks commercial substance. 
-Which of the following would be correct for Stanton to record in Case II?

Accepted Answer

The answer of Use the following information to answer questions...

Question 14

Elton Industries, a company who uses IFRS reporting standards, has assets and liabilities of a disposal group classified as held-for-sale shown on its statement of financial position. Which of the following presents the best treatment for these?

Accepted Answer

A)  These assets and liabilities should be netted and presented as a single amount - either a current asset or a current liability on the statement of financial position. 
B)  On the balance sheet, the disposal group assets should be shown separately from other assets, while the disposal group liabilities should be shown separately from other liabilities. 
C)  The assets and liabilities should be netted and presented as a deduction from equity on the statement of financial position. 
D)  There should be no separate disclosure of these assets and liabilities on the statement of financial position.

Question 15

During 2014, Kimmel Co. incurred weighted-average accumulated expenditures of $800,000 during construction of assets that qualified for capitalization of interest. The only debt outstanding during 2014 was a $1,000,000, 10%, 5-year note payable dated January 1, 2012. What is the amount of interest that should be capitalized by Kimmel during 2014?

Accepted Answer

A)  $0. 
B)  $20,000. 
C)  $80,000. 
D)  $100,000.

Question 16

Capitalization of interest.
During 2014, Barden Building Company constructed various assets at a total cost of $12,600,000. The weighted average accumulated expenditures on assets qualifying for capitalization of interest during 2014 were $8,400,000. The company had the following debt outstanding at December 31, 2014:  
Instructions
Compute the amounts of each of the following (show computations).
1. Avoidable interest.
2. Total interest to be capitalized during 2014.

Accepted Answer

The answer of Capitalization of interest.
During 2014, Barden Building Company...

Question 17

On March 1, Imhoff Co. began construction of a small building. Payments of $400,000 were made monthly for four months beginning March 1. The building was completed and ready for occupancy on June 1. In determining the amount of interest cost to be capitalized, the weighted-average accumulated expenditures are

Accepted Answer

A)  $200,000. 
B)  $400,000. 
C)  $800,000. 
D)  $1,600,000.

Question 18

Use the following information for questions 63 and 64.
Wilson Co. purchased land as a factory site for $900,000. Wilson paid $80,000 to tear down two buildings on the land. Salvage was sold for $5,400. Legal fees of $3,480 were paid for title investigation and making the purchase. Architect's fees were $31,200. Title insurance cost $2,400, and liability insurance during construction cost $2,600. Excavation cost $10,440. The contractor was paid $2,800,000. An assessment made by the city for pavement was $6,400. Interest costs during construction were $170,000.
-The cost of the land that should be recorded by Wilson Co. is

Accepted Answer

A)  $980,480. 
B)  $986,880. 
C)  $989,880. 
D)  $996,280.

Question 19

Which of the following is the recommended approach to handling interest incurred in financing the construction of property, plant and equipment?

Accepted Answer

A)  Capitalize only the actual interest costs incurred during construction. 
B)  Charge construction with all costs of funds employed, whether identifiable or not. 
C)  Capitalize no interest during construction. 
D)  Capitalize interest costs equal to the prime interest rate times the estimated cost of the asset being constructed.

Question 20

When a plant asset is acquired by issuance of common stock, the cost of the plant asset is properly measured by the

Accepted Answer

A)  par value of the stock. 
B)  stated value of the stock. 
C)  book value of the stock. 
D)  fair value of the stock.

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