Chapter 12 FA

Margot Company constructs a new building that will replace its current office building. In addition to construction materials and labor, which of the following costs incurred during the construction period should be included in the cost of the new building?

Construction related overhead costs Interest costs Architect fees

Clarion purchases land and prepares it for use. Which of the following items should be capitalized as land improvements?

Cost of driveways Cost of lawn sprinkler system Cost of sidewalks

Sarah purchases land to be used for a new storage facility. Which of the following items are capitalized in the cost of land?

Costs to remove an old building Real estate agent commissions Legal fees to secure title

Pearce Corporation exchanges old equipment for new equipment. The original cost of the equipment was $120,000, and it's accumulated depreciation at the date of exchange was $40,000. The new equipment received had a fair value of $50,000 and a book value of $32,000. The journal entry to record this exchange will include which of the following entries?

Debit accumulated depreciation $40,000 Debit equipment $50,000 Credit equipment $120,000 Debit loss on exchange $30,000

Self-constructed buildings include which of the following costs?

Labor costs incurred for construction of building Material costs incurred for construction of building Interest costs incurred during construction

The profit margin ratio is defined as ___ ___ divided by net sales.

net income

What is the formula for profit margin ratio?

net income/net sales

When selling a fixed asset, the seller recognizes a gain or loss for the difference between the amount received and the ___ value of the asset sold.

Book

Jan purchases a piece of land and immediately tears down an old building. The proceeds from selling the salvaged materials should be recognized as:

A reduction in the cost of the purchased land.

Depletion

Allocation of the cost of a natural resource over its service life

The term ___ means to record an expenditure as an asset.

Capitalize

In accounting, expenditures recorded as assets are said to be ____.

Capitalized

The purchase price and all costs to bring an asset to its desired condition and location for use should be ___.

Capitalized

Costs that produce future benefits are ___, busy costs that produce benefits only in the current period are ___.

Capitalized; expensed

Machines used in manufacturing, computers, printers, vehicles, furniture, and fixtures generally are classified as ___.

Equipment

Recurring costs related to equipment

Expense during the period they are incurred

Larry purchases land to be used for a new corporate headquarters. Which of the following items are capitalized in the cost of land?

Grading the land Legal fees to secure title Costs to remove an old building Title insurance

Cost of preparing asset for use

Include as part of asset cost

Which of the following costs should be capitalized in the costs of acquiring a building?

Realtor commissions Legal fees to obtain title Purchase price

Otto Inc. retires old equipment with a book value of $2,400. Otto should

Recognize a loss of $2,400

Depreciation

allocation of the cost of a tangible asset over its service life

When assets are purchased in a group for a single sum, it is referred to as a

basket purchase

An asset that has no physical substance is referred to as a(n)

intangible asset

Long-term assets are classified as

intangible, tangible

The cost of land improvements are capitalized separately from land because land improvements tend to have a ___ useful life.

limited

In a basket purchase of assets, the cost must be allocated to the individual assets because

the assets have different useful lives

Costs incurred to acquire equipment are recognized as a(n)___, while cost providing a benefit in the current period only are recognized as a(n) ___.

Asset Expense

Which of the following items should be capitalized as land improvements?

Cost of fences Cost of parking lots Cost of sidewalks

Krasel Corporation exchanges old equipment for new equipment. The original cost of the old equipment was $90,000, and it's accumulated depreciation at the date of exchange was $70,000. The new asset received had a fair value of $50,000 in a book value of $45,000. The journal entry to record this exchange will include which of the following entries?

Credit gain on exchange of asset $30,000 Credit equipment $90,000 Debit accumulated depreciation $70,000 Debit equipment $50,000

The journal entry to retire old equipment that is not fully depreciated includes a:

Credit to equipment Debit to loss Debit to accumulated depreciation

An asset that has no physical substance is called a(n) ___ asset.

Intangible

Self-constructed buildings include which of the following costs?

Interest costs incurred during construction Labor costs incurred for construction of building Material costs incurred for construction of building

A retirement or abandonment of an asset is different from a sale of an asset because

No cash is recognized A loss must be recognized for the remaining book value.

Land used in a company's ___ is classified as property, plant and equipment, while land held solely for the expected increase in value is classified as an ___.

Operation; investment

Accounting for land improvements requires that the costs of land improvements are

Recorded separately from the land itself

Cash received from selling salvaged materials:

Reduces the cost of the land.

A basket purchase or lump-sum acquisition of assets requires that an allocation is made to each individual asset based on the asset's ___.

Relative fair value

Which of the following costs should be capitalized in the costs of acquiring a building?

Remodeling building Legal fees to obtain title Realtor commissions

Which of the following are expenditures for assets subsequent to acquisition?

Repairs and maintenance Additions Improvements

An asset ___ occurs when an asset is not longer useful, but cannot be sold.

Retirement

The distinction between land and land improvements is that:

land has an indefinite life

Amortization

Allocation of the cost of an intangible asset over its service life

The gain or loss on disposable of an asset is calculated as:

Amount received less the book value of asset sold

The cost of a major improvement that extends the service life of an asset would be _____, whereas the cost of maintenance that does not increase the future benefits would be _____.

Capitalized; expensed

Which of the following items should be capitalized in the cost of equipment?

Legal fees to establish title Installation and testing of equipment Freight to deliver the equipment Sales tax

accounting for land improvements requires that the land improvements are recorded separately from land because the improvements have a ___ life.

Limited

Which of the following items typically are classified as equipment?

Machinery used in manufacturing, furniture and fixtures, computers and printers used in office

Long-lived assets are typically classified in two categories: ___ and ___.

Tangible; intangible

In a basket or lump-sum purchase of assets, the total acquisition cost is allocated to the individual assets by multiplying the lump-sum purchase price times

The relative fair value percentages of each asset.

True or false: The initial cost of property, plant, and equipment includes the purchase price and all expenditures necessary to bring the asset to its desired condition and location for use.

True