303 Exam 3- CH. 9

Question 1

T/F: Land held for speculative purposes is classified as Property, Plant, and Equipment but is not depreciated.

Answer 1

False; Land held for speculative purposes is classified as an Investment.

Question 2

Co. Recently purchased Island Resort and the land on which it is located with the plan to tear down the resort and build a new luxury hotel on this site. Co. Salvaged fixtures and wood flooring from Island prior to demolishing the building. The proceeds from the sale of the salvaged materials should be

Answer 2

Recorded as a reduction of the cost of the land

Question 3

T/F: A special assessment by the municipality for sidewalks and a drainage system would be included in the cost of the land.

Answer 3

True; permanent in nature

Question 4

The most extensively used method of accounting for overhead costs related to self-constructed assets is:

Answer 4

Assigning a portion of all overhead to this asset

Question 5

Which of the following is NOT a characteristic of PPE?

Answer 5

They are acquired for resale

Question 6

PPE includes

Answer 6

None of these are correct

Does not include:
Deposits on machinery not yet received
Idle equipment awaiting sale
Land held for possible use as a future plant site

Question 7

The cost of manufacturing equipment would include all the following except:

Answer 7

Cost of training an operator

Would include:
Purchase price reduced by discount
Freight costs
Installation costs

Question 8

Co. Purchased equipment on July 1 for $76,000. Sales tax on the purchase was $760. Other costs incurred were freight charges of $850, insurance during shipping of $220, repairs of $1390 for damage during installation cost of $1,180. What is the cost of the equipment?

Answer 8

$79,010; purchase+tax+freight+insurance+installation

Question 9

Come back to 9.1 q 9

Question 10

The accounting for interest costs incurred during construction recommended under GAAP is to:

Answer 10

Capitalize the lesser of the actual interest cost for the period or the amount of interest cost incurred during the period that the company could have avoided if expenditures for the asset had not been made.

Question 11

T/F: Avoidable interest is the lesser of actual interest cost incurred during a fiscal period or the amount of interest cost incurred during the construction period that a company could theoretically avoid if it had not made expenditures for the asset.

Answer 11

False; the interest to be capitalized for a self-constructed asset is the lesser of actual interest incurred during the period or avoidable interest

Question 12

The period of time during which interest must be capitalized ends when

Answer 12

The asset is substantially complete and ready for its intended use

Question 13

Which of the following statements is TRUE regarding capitalization of interest?

Answer 13

The amount of interest cost capitalized during the period should not exceed the actual interest cost incurred

Question 14

The interest rate(s) used in computing avoidable interest is the

Answer 14

Rate incurred on specific borrowings for the weighted-average expenditures equal to the specific borrowings and the weighted-average rate of other borrowings for the excess expenditures.

Question 15

The cost of property acquired by the issuance of securities is equal to:

Answer 15

The market value of the securities; property acquired in a non cash transaction is recorded at the market value of the item given up or the market value of the property received- whichever is more readily determinable.

Question 16

Co. Purchased land and a hurdling for a lump sum cost of $430,000. The land has a fair market value of $170,000 and the building has a fair market value of $339,000. The cost assigned to the land is

Answer 16

The lump sum price incurred to acquire more than one asset is allocated among them based on their relative fair market values:
Fair market value of land, $170,000 / (Fair market value of land, $170,000 + Fair market value of building, $339,000 = $509,000) x (Lump sum cost, $430,000) = cost assigned to land, $143,615

Question 17

t/F: If an exchange has commercial substance, all losses should be recognized immediately; however, gains should be deferred.

Answer 17

False; if an exchange has commercial substance, both gains and losses should be recognized immediately.

Question 18

Cash or other assets received in an exchange are referred to as “boot”

Answer 18

False; only cash received in an exchange is referred to as “boot”

Question 19

Plant assets purchased in exchange for a long-term credit contracts (zero-interest bearing note) should be accounted for at the:

Answer 19

Present Value of the note

Question 20

In an exchange that lacks commercial substance in which a gain exists, and cash is received, the asset received is recorded at the:

Answer 20

Fair value of the asset received less the deferred portion of the gain

Question 21

In an exchange of non monetary assets that has commercial substance, when no cash is involved, the new asset is valued at:

Answer 21

The fair value of the new asset

Question 22

The gain recognized in an exchange that lacks commercial substance and in which cash is received is computed by multiplying the total gain by the formula of:

Answer 22

Cash received divided by the total of cash received plus fair value of the asset received

Question 23

In an exchange of non monetary assets that lacks commercial substance in which a gain exists, and no cash is paid or received, the asset received is recorded at:

Answer 23

Fair value of the asset received less the gain deferred

Question 24

Assets acquired in a lump sum purchase should be recorded at:

Answer 24

Relative Fair Market Values

Question 25

Co. Exchanged equipment that cost $68,500 and has accumulated depreciation of $33,600 for equipment with a fair value of $51,500 and received $14,400 cash. The exchange lacked commercial substance. The gain to be recognized from the exchange is

Answer 25

((Cash received, $14,400/ (cash received, $14,400 + Fair value, $51,500)) x ((fair value, $51,500 + cash received, $14,400 - (exchanged equipment cost, $68,500 - Accumulated Depreciation, $33,600))) = gain of $6774

Question 26

Expenditures that extend the useful life of a plant asset without improving its quantity or quality are accounted for:

Answer 26

By debiting accumulated depreciation

Question 27

Co. Sold manufacturing equipment with a cost of $45,000 and accumulated depreciation of $32,400 for $9,900. The journal entry to record this transaction will include:

Answer 27

A debit to a loss account for $2,700

Question 28

T/F: The entry to record the sale of a plant asset at a loss includes a credit to Accumulated Depreciation.

Answer 28

False; the entry to record the sale of a plant asset at either a gain or a loss will include a debit to accumulated depreciation.

Question 29

Co. Purchased machinery for $329,200 on Jan 1. Straight line depreciation has been recorded based on a $43,000 salvage value and a 5-year useful life. The machinery was sold May 1 at a gain of $6,200. How much cash did co. Receive from the sale of the machinery?

Answer 29

A cost of $329,200 - $248,040 in accumulated depreciation (see 9.5 q 3) = $81,160. Adding the $6,200 gain indicates sale price was $87,360

Question 30

Co. Sold equipment with a cost of $75,100 and accumulated depreciation of $40,100 for $37,100. The journal entry to record this transaction will include:

Answer 30

A debit to accumulated depreciation - equipment for $40,100

Question 31

T/F: The receipt of an asset from a contribution should be recorded as additional paid-in capital

Answer 31

False; contributions received should be recorded as revenue in the period received

Question 32

A plant site donated by a township to a manufacturer that plans to open a new factory should be recorded on the manufacturers books at

Answer 32

It’s fair value

Question 33

Property received through a contribution is to be recognized at its fair market value and offset with a credit entry to a:

Answer 33

Contribution Revenue account.