Chapter 10

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

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

False

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

140,000 160/480*420

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

4800

On September 1, 2017, Alpha Graphics Printing Co. incurred the following costs for one of its printing presses: Purchase of attachment $35,000 Installation of attachment 3,000 Replacement parts for renovation of press 12,000 Labor and overhead in connection with renovation of press 1,000 Neither the attachment nor the renovation increased the estimated useful life of the press. However, the renovation resulted in significantly increased productivity. What amount of the costs should be capitalized?

51,000 (35,000+3,000+12,000+1,000)

During self-construction of an asset by Gambino Company, the following were among the costs incurred: Fixed overhead for the year $1,210,000 Portion of $1,000,000 fixed overhead that would be allocated to asset if it were normal production 35,000 Variable overhead attributable to self-construction 25,000 What amount of overhead should Gambino include in the cost of the self-constructed asset?

60,000 (25000 + 35000)

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?

66,000 320-260 = (320,000- 20,000/5) = 60,000 *4 = 240,000 + 60,000 *4/12, 20,000 60,000. Adding 6K back to get 66,000

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?

72700 70,000 (purchase) + 700 (sales tax) + 800 (freight charges) + 150 (insurance during shipping) + 1,050 (installation costs)

Delta River Company sold manufacturing equipment with a cost of $44,000 and accumulated depreciation of $32,000 for $9,000. The journal entry to record this transaction will include:

A debit to a loss account for 3,000 44 - 32 = 12 - 9

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

Contribution revenue account

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

If an exchange has commercial substance all losses should be recognized immediately and all gains should be deferred.

False - both gains and losses should be recognized immediately

The receipt of an asset from a contribution should be recorded as additional paid in capital

False - contributions received should be recorded as revenue, not APIC in the period received

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 incurred during the construction period that a company could theoretically avoid if it had made expenditures for the asset

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

Fasle - only cash received in an exchange is referred to as "boot"

Which one of the following is not a characteristic of pp&e

They are long-term in nature and are always subject to depreciation

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

True

Ridge Company sold equipment with a cost of $75,000 and accumulated depreciation of $40,000 for $37,000. The journal entry to record this transaction will include:

a debit to Accumulated Depreciation - Equipment for 40,000.

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

assigning a pro rata portion of fixed overhead to the asset

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

by debiting Accumulated Depreciation

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

capitalize the lesser of 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

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:

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

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

cost of training the equipment operator

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

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

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

its fair value

Property, plant, and equipment includes

none of these answers would be classified as PP&E

Plant assets purchases in exchange for a zero interest bearing note should be accounted for at the:

present value of the note

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

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

Cayo Casta Cabins Corporation recently purchased Ship Island Resort and Casino and the land on which it is located with the plan to tear down the resort and build a new luxury hotel on the site. Cayo Casta Cabin Corporation salvaged fixtures and wood flooring from Ship Island prior to demolishing the building. The proceeds from the sale of the salvaged materials should be

recorded as a reduction of the cost of the land

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

relative fair market values

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

the asset is substantially complete and ready for its intended use.

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

the fair value of the new asset

The cost of property acquired by the issuance of securities which are actively traded on an organized exchange is equal to:

the market value of the securities