chapter 10 intermediate accounting

the machinery account

The debit for a sales tax properly levied and paid on the purchase of machinery preferably would be a charge to a. the machinery account. b. a separate deferred charge account. c. miscellaneous tax expense (which includes all taxes other than those on income). d. accumulated depreciation--machinery.

none of these

Plant assets may properly include a. deposits on machinery not yet received. b. idle equipment awaiting sale. c. land held for possible use as a future plant site. d. none of these.

allocated on a pro rata basis between the asset and normal operations

To be consistent with the historical cost principle, overhead costs incurred by an enterprise constructing its own building should be a. allocated on the basis of lost production. b. eliminated completely from the cost of the asset. c. allocated on an opportunity cost basis. d. allocated on a pro rata basis between the asset and normal operations

All of these are major characteristics of a plant asset

Which of these is not a major characteristic of a plant asset? a. Possesses physical substance b. Acquired for use in operations c. Yields services over a number of years d. All of these are major characteristics of a plant asset

cost of improvements with limited lives

The cost of land does not include a. costs of grading, filling, draining, and clearing. b. costs of removing old buildings. c. costs of improvements with limited lives. d. special assessments.

private driveways and parking lots

The cost of land typically includes the purchase price and all of the following costs except a. grading, filling, draining, and clearing costs. b. street lights, sewers, and drainage systems cost. c. private driveways and parking lots. d. assumption of any liens or mortgages on the property

false

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

true

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

true

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

false

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

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

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.

false

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

false

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

true

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

capitalized as part of the cost of the land

Cotton Hotel Corporation recently purchased Emporia Hotel and the land on which it is located with the plan to tear down the Emporia Hotel and build a new luxury hotel on the site. The cost of the Emporia Hotel should be a. depreciated over the period from acquisition to the date the hotel is scheduled to be torn down. b. written off as an extraordinary loss in the year the hotel is torn down. c. capitalized as part of the cost of the land. d. capitalized as part of the cost of the new hotel.

land improvements

Fences and parking lots are reported on the balance sheet as a. current assets. b. land improvements. c. land. d. property and equipment.

property, plant, and equipment items are always acquired at their original historical cost

Historical cost is the basis advocated for recording the acquisition of property, plant, and equipment for all of the following reasons except a. at the date of acquisition, cost reflects fair market value. b. property, plant, and equipment items are always acquired at their original historical cost. c. historical cost involves actual trans¬actions and, as such, is the most reliable basis. d. gains and losses should not be anticipated but should be recognized when the asset is sold.

true

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

the intention of management for the property when the building was acquired

If a corporation purchases a lot and building and subsequently tears down the building and uses the property as a parking lot, the proper accounting treatment of the cost of the building would depend on a. the significance of the cost allocated to the building in relation to the combined cost of the lot and building. b. the length of time for which the building was held prior to its demolition. c. the contemplated future use of the parking lot. d. the intention of management for the property when the building was acquired.

false

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

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.

false

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

Acquired for resale

Which of the following is not a major characteristic of a plant asset? a. Possesses physical substance b. Acquired for resale c. Acquired for use d. Yields services over a number of years

true

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

false

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

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.

false

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

false

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

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.

materials, labor, and overhead

Which of the following costs are capitalized for self-constructed assets? a. Materials and labor only b. Labor and overhead only c. Materials and overhead only d. Materials, labor, and overhead