Intermediate I Ch. 10 PPE

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

False Accumulated Depreciation is a contra account with a credit balance. The entry to record the sale of a plant asset at either a gain or a loss will include a debit, not a credit, to Accumulated Depreciation.

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

False Land held for speculative purposes is classified as an Investment, not PPE.

Watauga Company purchased equipment on July 1, 2017 for $70,000. Sales tax on the purchase was $700. Other costs incurred were freight charges of $800, insurance during shipping of $ 150, repairs of $1,300 for damage during installation, and installation costs of $1, 050. What is the cost of the equipment? -$74,000 -$70,000 -$71,500 -$72,700

$72,700 Repair costs are not capitalized

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

True This type of one-time special assessment for sidewalks and drainage system would be included in the cost of the land since it is relatively permanent in nature.

Bogle Company purchased machinery for $320,000 on January 1, 2014. Straight-line depreciation has been recorded based on a $20,000 salvage value and a 5-year useful life. The machinery was sold on May 1, 2018 at a gain of $6,000. How much cash did Bogle receive from the sale of the machinery? $86,000. $66,000. $46,000. $54,000.

A cost of $320,000 - $260,000 in accumulated depreciation (Cost, $320,000 - Salvage value, $20,000 / 5 years = $60,000 annual depreciation x 4 years = $240,000 + 2014 Depreciation, $60,000 x 4/12 months, $20,000) results in a book value of $60,000. Adding the $6,000 gain indicates sale price was $66,000.

Property received through a contribution is to be recognized at its fair market value and offset with a credit entry to a: Miscellaneous Gain account. Paid-in Capital account. Additional Paid-in Capital account. Contribution Revenue account.

Contribution Revenue account. FASB requires that such contributions be recognized as revenues in the period received. Thus, the correct credit entry should be made to the Contribution Revenue account, not the Paid-in Capital account.

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.

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

Cash or other assets received in an exchange are referred to as "boot."

False. Only cash received in an exchange is referred to as "boot."

Which of the following statements is true regarding capitalization of interest? -The amount of interest cost capitalized during the period should not exceed the actual interest cost incurred. -Interest cost capitalized in connection with the purchase of land to be used as a building site should be debited to the land account and not to the building account. -When excess borrowed funds not immediately needed for construction are temporarily invested, any interest earned should be offset against interest cost incurred when determining the amount of interest cost to be capitalized. -The minimum amount of interest to be capitalized is determined by multiplying a weighted average interest rate by the amount of average accumulated expenditures on qualifying assets during the period.

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

Texarkana Company exchanged equipment that cost $66,000 and has accumulated depreciation of $30,000 for equipment with a fair value of $48,000 and received $12,000 cash. The exchange lacked commercial substance. The gain to be recognized from the exchange is -$6000 gain -$18,000 gain -$4800 gain -$24,000 gain

The formula is [(Cash received, $12,000 / {Cash received, $12,000 + Fair value, $48,000}) X {(Fair value, $48,000 + Cash received, $12,000 - (Exchanged equipment cost, $66,000 - Accumulated Depreciation, $30,000)}], or Gain, $4,800.

Burchell Company purchased land and a building for a lump sum cost of $420,000. The land has a fair market value of $160,000 and the building has a fair market value of $320,000. The cost assigned to the land is -$160,000 -$140,000 -$0 -$210,000

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, $160,000/ (Fair market value of land, $160,000 + Fair market value of building, $320,000 = $480,000)] x (Lump sum cost, $420,000) = Cost assigned to the land, $140,000.

In an exchange that lacks commercial substance in which a gain exists and cash is received, the asset received is recorded at the: -fair value of the asset received less the deferred portion of the gain. -book value of the asset given up less cash received. -book value of the asset given up less the deferred portion of the gain. -fair value of the asset given up less cash received.

fair value of the asset received less the deferred portion of the gain. When cash is received in an exchange that lacks commercial substance and a gain exists, the asset received is recorded at the fair value of the asset received less the deferred portion of the gain.

In an exchange of nonmonetary assets that lacks commercial substance in which a gain exists and no cash is paid or received, the asset received is recorded at: fair value of the asset received less the gain deferred. fair value of the asset given up less the deferred gain. book value of the asset received less the gain deferred. book value of the asset given up plus the deferred gain.

fair value of the asset received less the gain deferred. In exchanges of nonmonetary assets that lack commercial substance not involving cash received where gains exist, the asset received is recorded at the fair value of the asset received less the deferred gain.

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

its fair value

Property, plant and equipment includes -deposits on machinery not yet received -idle equipment awaiting sale -land held for possible use as a future plant site -none of these would be classified as PPE

none of these would be classified as PPE

Plant assets purchased in exchange for a zero-interest-bearing note should be accounted for at the: -fair value of the asset received -book value of the asset received -present value of the note -face value of the note

present value of the note To properly reflect cost, companies account for assets purchased on long-term credit contracts (zero-interest bearing note) at the present value of the consideration exchanged between the contracting parties at the date of the transaction. The fair value of the asset received should not be used.