Chp 10

Special assessments for local improvements, such as pavements, street lights, sewers, and drainage systems, are usually charged to what account?

Land.

Which of the following is not a capital expenditure with regard to a manufacturing facility?

Replacing the heating system with a more energy efficient model Replacing the air conditioning system with a similar unit ******Painting the exterior of the building(Repairs and maintenance) Expanding the building by adding a new wing

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.

IFRS and GAAP both use a commercial substance test to determine whether gains on nonmonetary exchanges should be recognized.

True, GAAP changed from a "similar in nature" criterion to the commercial substance test to converge with IFRS.

The cost of land includes all of the following except

****cost of fencing and lighting. purchase price. payments to clear liens. cost of leveling and grading.

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, 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.

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

False, If an exchange has commercial substance, both gains and losses should be recognized immediately.

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.

The cost of a replacement that extends the useful life of an asset should be debited to the asset account.

False, When an asset's useful life is extended by a replacement, the cost of such replacement should be debited to the related Accumulated Depreciation account.

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

The interest rates used in computing avoidable interest are the specific interest rate and the weighted average rate.

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

True

The approach 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 buildings should include all of the following except:

costs of removing an old building on the new building site. The cost of removing an old building is a cost of getting the land ready and relates to the land instead of the new building.

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 given up less the deferred gain.

A nonmonetary asset acquired in an exchange that has commercial substance is usually recorded at the:

fair value of the asset given up, unless fair value of the asset received is more clearly evident.

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.

Which of the following is one of the conditions that must be present for the capitalization period of interest to begin?

interest costs are being incurred.

The sale of a depreciable asset resulting in a loss indicates that the proceeds from the sale were

less than book value. If sale proceeds are less than book value, a loss occurs.

Which of the following costs are capitalized for self-constructed assets?

materials, labor, and overhead

All of the following are true regarding the revaluation model allowed under IFRS except:

once selected, the revaluation policy applies to an entire class of property, plant, and equipment. revaluations must be made regularly to ensure that the carrying value is not materially different from fair value. after initial recognition, the revalued amount is fair value less subsequent depreciation and impairment losses. ****when an asset is revalued, any increase in carrying amount is reported as miscellaneous revenue.

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

present value of the note.

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

purchase price reduced by any discount taken. ********cost of training the equipment operator.(not capitalized) freight costs. installation costs.

Which of the following is not a major characteristic of a plant asset?

quired for resale, Plant assets are not acquired for resale as a normal course of business.

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

relative fair market values. Formula: (FV/total of FV) X Price

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.