Question 1

If an asset is purchased by giving a non-interest-bearing note payable,the use of an unrealistically low interest rate will cause the asset to be recorded at a cost that is too low and the interest expense amount reported on the income statement also will be too low.

Accepted Answer

A) True 
 B)False

Question 2

The cost of a major inspection of an airplane engine would be capitalized if it occurred several times per year.

Accepted Answer

A) True 
 B)False

Question 3

When a capital asset (such as land or buildings) is purchased,any unpaid property taxes (for the period prior to the purchase date) that are paid by the purchaser should be recorded as part of the cost of the asset.

Accepted Answer

A) True 
 B)False

Question 4

Property taxes accrued u
to the date of the purchase of a capital asset should be included in the recorded cost of the asset.

Accepted Answer

A) True 
 B)False

Question 5

Indicate for each transaction below the account(s) and amount(s) that should be debited and credited.Use abbreviated account titles. $$\begin{array} { | l | r | r | } 
\hline \text {Item}& \text {Accounts}& \text {Amounts}\
\hline
\end{array}$$ (a) Jan. 1, 2001 purchased land with a usable office building. thereon for cash of $ \$ 200,000 $. Tax assessment values: Land $ \$ 20,000 $ : building $ \$ 60,000 $
(b) Jan. 1, 2001 purchased land for future bldg. site for a cash cost of $ \$ 40,000 $; an old bldg. on this site, appraised at $ \$ 2,000 $ at the date of purchase, is to be torn down immediately.
(c) Net cash cost of demolishing the old bldg. in (b) above amounted to $ \$ 2,000 $.
(d) Cash cost of excavation for basement of the new bldg. (b above) was $ \$ 6.000 $.
(e) Lawyers' fees paid in connection with purchase of real estate in (b) $ \$ 900 $.
(f) Taxes paid on land purchased in (b) assessed before completion of building. $ \$ 300 $.
(g) Factory superintendent's salary for 2001 was $ \$ 24,000 $. During 2001, the superintendent spent the first six months supervising construction of the new bldg: the next three months supervising installation of productive machinery in the new bldg, and the last three months supervising operations in the new building.
(h) Cost of grading and paving parking space and walks behind new building, $ \$ 9,500 $. (i) Brick work amounting to $900 was performed on the building's exterior.This amount is deemed material and the work is expected to last for 20 years.

Accepted Answer

The answer of Indicate for each transaction below the account(s)...

Question 6

A donated fixed asset for which the fair value has been determined should be recorded as a debit to capital assets and a credit to:

Accepted Answer

A) deferred income. 
B) revenue or gain. 
C) contributed capital. 
D) retained earnings.

Question 7

Harris Company has an old asset that originally cost $115,000 (accumulated amortization,$56,000).Its current market value is $105,001.Harris Company purchased another asset by paying cash $10,500 and trading in the old asset.The new asset had a list price of $135,000 and a cash price of $120,001.The assets are similar.Harris Company should record the cost of the new machine at $110,000:

Accepted Answer

A) True 
 B)False

Question 8

A primary principle in recording and reporting capital assets other than land is that they are recorded at cost when acquired and subsequently are reported at cost or cost less accumulated amortization.

Accepted Answer

A) True 
 B)False

Question 9

On January 1st,2013,PC Inc.disposed of an old elevator for $10,000.The elevator had a carrying value $20,000 (Cost: $100,000,Accumulated Amortization: $80,000).On January 2nd,2013,a new elevator was purchased for $200,000 with an expected useful life of 20 years and a salvage value of $40,000.Ignoring any of PC's other long-lived assets,the amount of amortization expense that PC would record for 2013 would be:

Accepted Answer

A) $25,000. 
B) $20,000. 
C) $10,000. 
D) $8,000.

Question 10

EC has an old asset that originally cost $150,000; the accumulated amortization is $76,000.Its current market value is $81,000.This old asset is exchanged for another asset (new) that has a list price of $100,000.EC should record the following as the cost of the new asset received,assuming that the two assets are: $$\begin{array} { | l | l | l | } 
\hline & \text { Dissimilar } & \text { Similar } \
\hline 1 & \$ 100,000 & \$ 81,000 \
\hline 2 & \$ 81,000 & \$ 76,000 \
\hline 3 & \$ 81,000 & \$ 74,000 \
\hline 4 & \$ 90,000 & \$ 74,000 \
\hline
\end{array}$$

Accepted Answer

A) Choice 1 
B) Choice 2 
C) Choice 3 
D) Choice 4

Question 11

Under the cost model (IFRS) impairment losses are irreversible.

Accepted Answer

A) True 
 B)False

Question 12

XYZ acquired Machine N from ABC.The machine had a cash price of $6,250.XYZ paid for the machine with $1,500 cash and traded in used Machine O,which is similar to N.Machine O originally cost $7,500 and had accumulated amortization of $3,000.Machine N had a market value of $5,500.
Give the entry for XYZ to record the exchange.

Accepted Answer

The answer of XYZ acquired Machine N from ABC.The machine...

Question 13

CA acquired a tract of land.The seller quoted a price of $30,000 cash,plus a $50,000,16 percent,one-year,interest-bearing note payable.During later negotiations,the land was appraised by a local real estate agent at $76,000 and was shown on the city tax rolls at an assessed value for tax purposes at $63,000.After considerable negotiation,CA paid $25,000 cash and signed a two-year non-interest-bearing note,payable in two instalments of $30,000 each at the end of each of the next 2 years.The going rate of interest for such transactions was 12 percent.Give the entry to record the land acquisition.

Accepted Answer

The answer of CA acquired a tract of land.The seller...

Question 14

On January 1,2012,BC debited $4,000 of ordinary repairs to the asset account,Machinery.The machinery is depreciated on a straight-line basis over 10-years with no residual value.On December 31,2014,the error was discovered.Give the entry,or entries,to correct the accounts on that date.

Accepted Answer

The answer of On January 1,2012,BC debited $4,000 of ordinary...

Question 15

Under the Fair Value Model,tangible and intangible assets with a fair market value are revalued to fair value every year.

Accepted Answer

A) True 
 B)False

Question 16

A consideration in determining the useful life of an intangible asset is not the:

Accepted Answer

A) initial cost. 
B) legal, regulatory, or contractual provisions. 
C) provisions for renewal or extension. 
D) expected actions of competitors.

Question 17

Costs incurred by a company that may develo its own goodwill internally should be:

Accepted Answer

A) capitalized and amortized as the company profits increased. 
B) capitalized and amortized over the useful life of the goodwill. 
C) expensed when incurred as a current operating expense. 
D) capitalized and amortized over a period not to exceed 40 years.

Question 18

Under both ASPE and IFRS,borrowing costs on qualifying self-constructed assets may be capitalized or expensed.

Accepted Answer

A) True 
 B)False

Question 19

Under IFRS,interest on generalized borrowings used to construct a qualifying asset must be capitalized using the company's weighted average cost of capital.

Accepted Answer

A) True 
 B)False

Question 20

A firm currently occupies a facility on land it also owns.The firm decides to raze this facility and in its place construct a new state-of-the-art complex.The gross cost to raze the old facility is $100,000 but the firm was able to sell some of the salvage material for $15,000.The book value of the old facility was $30,000 before demolition.The new complex was built at a cost of $400,000,excluding any other items mentioned previously in this question. What is the capitalized cost of the new complex?

Accepted Answer

A) $485,000 
B) $400,000 
C) $515,000 
D) $385,000

Exam 9: Property,Plant,and Equipment; Intangibles; and Goodwill

If an asset is purchased by giving a non-interest-bearing note payable,the use of an unrealistically low interest rate will cause the asset to be recorded at a cost that is too low and the interest expense amount reported on the income statement also will be too low.

The cost of a major inspection of an airplane engine would be capitalized if it occurred several times per year.

When a capital asset (such as land or buildings) is purchased,any unpaid property taxes (for the period prior to the purchase date) that are paid by the purchaser should be recorded as part of the cost of the asset.

Property taxes accrued u to the date of the purchase of a capital asset should be included in the recorded cost of the asset.

A donated fixed asset for which the fair value has been determined should be recorded as a debit to capital assets and a credit to:

A primary principle in recording and reporting capital assets other than land is that they are recorded at cost when acquired and subsequently are reported at cost or cost less accumulated amortization.

Under the cost model (IFRS) impairment losses are irreversible.

On January 1,2012,BC debited $4,000 of ordinary repairs to the asset account,Machinery.The machinery is depreciated on a straight-line basis over 10-years with no residual value.On December 31,2014,the error was discovered.Give the entry,or entries,to correct the accounts on that date.

Under the Fair Value Model,tangible and intangible assets with a fair market value are revalued to fair value every year.

A consideration in determining the useful life of an intangible asset is not the:

Costs incurred by a company that may develo its own goodwill internally should be:

Under both ASPE and IFRS,borrowing costs on qualifying self-constructed assets may be capitalized or expensed.

Under IFRS,interest on generalized borrowings used to construct a qualifying asset must be capitalized using the company's weighted average cost of capital.