T/F chapter 10

When capitalizing interest during construction of an asset, an imputed interest cost on stock financing must be included.

False

Assets classified as Property, Plant, and Equipment must be both long-term in nature and possess physical substance.

True

Avoidable interest is the amount of interest cost that a company could theoretically avoid if it had not made expenditures for the asset.

True

The interest incurred on the specific borrowings is used for the portion of weighted-average accumulated expenditures that is less than or equal to any amounts borrowed specifically to finance construction of the assets.

True

When a company purchases land with the intention of developing it for a particular use, interest costs associated with those expenditures qualify for interest capitalization.

True

When an ordinary repair occurs, several periods will usually benefit.

False

Companies should assign no portion of fixed overhead to self-constructed assets.

False

If a nonmonetary exchange lacks commercial substance, and cash is received, a partial gain or loss is recognized.

False

When a company exchanges nonmonetary assets and a loss results, the company recognizes the loss only if the exchange has commercial substance.

False

A building owned by a corporation is always classified as property, plant, and equipment.

(F) To be classified as property, plant, and equipment, the building (a) must be acquired for use in operations and not for resale, (b) be long-term in nature and generally subject to depreciation, and (c) possess physical substance. The second and third criteria would normally be met by any building owned by a company. However, a company could own a building that was not used in its operations and was held for sale. In this case the building would be classified as an other asset.

Assets classified as Property, Plant, and Equipment can be either acquired for use in operations, or acquired for resale.

False

Assets under construction for a company's own use do not qualify for interest cost capitalization.

False

Companies always treat gains or losses from an involuntary conversion as extraordinary items.

False

Land that is not being developed qualifies for interest capitalization.

False

Special assessments for local improvements such as street lights and sewers should be accounted for as land improvements.

False

The amount of interest to be capitalized is the higher of actual interest cost incurred during the period or avoidable interest.

False

The cost of items classified as property, plant, and equipment should include all expenditures related to the asset incurred during the first three months of the asset's useful life.

False

The interest costs on funds ised to acquire an asset should not be capitalized even if a significant period of time is required to bring the asset to a condition or location necessary for its intended use.

False

When land has been purchased for the purpose of constructing a new building, all costs incurred in connection with preparing the land for excavation are considered building costs.

False

When land with an old building is purchased as a future building site, the cost of removing the old building is part of the cost of the new building.

False

In general, because the exchange of non-monetary assets does not constitute a sale by either party involved in the transaction, the accounting should be based on the book value of the assets involved.

False, The book value of assets can sometimes be misleading because of the variety of accounting methods that can be used to account for these items. Thus, when an exchange of non-monetary assets is involved, the accounting should be based on fair value of the asset given up or the fair value of the asset acquired, whichever is more clearly evident.

An asset should be recorded at the fair value of the consideration given up to acquire it or at its fair market value, whichever is higher.

False, an asset should be recorded at the fair value of what is given up to acquire it or at its own fair market value, whichever is more clearly evident.

Assets purchased on long-term credit contracts should be recorded at the present value of the consideration exchanged.

True

Companies account for the exchange of nonmonetary assets on the basis of the fair value of the asset given up or the fair value of the asset received.

True

Costs incurred subsequent to the acquisition of an asset are capitalized if they provide future benefits.

True

Equipment purchased through the use of deferred payment contracts should be accounted for at the present value of the contract.

True

If a company scraps an asset without any cash recovery, it recognizes a loss equal to the asset's book value.

True

If the allocation of overhead to self-constructed assets results in an asset cost that is greater than the cost that would be charged by an independent producer, the excess overhead should be recorded as a period loss.

True

Improvements are often referred to as betterments and involve the substitution of a better asset for the one currently used.

True

Insurance on equipment purchased, while the equipment is in transit, is part of the cost of the equipment.

True

The cash or cash equivalent price of items classified as property, plant, and equipment best measures the value of the asset on the date of acquisition.

True

The purpose of imputed interest is to approximate the interest of a deferred purchase contract when one is not expressly stated.

True

Use of the current replacement cost method to account for property, plant, and equipment would

True

Variable overhead costs incurred to self-construct an asset should be included in the cost of the asset.

True