TOA PPE Quizzer

21. Which of the following is the recommended approach to handling interest incurred in financing the construction of property, plant and equipment? a. Capitalize only the actual interest costs incurred during construction. b. Charge construction with all costs of funds employed, whether identifiable or not. c. Capitalize no interest during construction. d. Capitalize interest costs equal to the prime interest rate times the estimated cost of the asset being constructed.

a. Capitalize only the actual interest costs incurred during construction.

41. Which of the following is not a capital expenditure? a. Repairs that maintain an asset in operating condition b. An addition c. A betterment d. A replacement

a. Repairs that maintain an asset in operating condition

26. When an asset acquired through government grants is recorded using the capital approach, a. assets and equity increase by the fair value of the asset. b. assets and liabilities increase by the fair value of the asset. c. assets and equity increase by the cost of the asset. d. assets and liabilities increase by the cost of the asset.

a. assets and equity increase by the fair value of the asset.

13. Assets that qualify for interest cost capitalization include a. assets under construction for a company's own use. b. assets that are ready for their intended use in the earnings of the company. c. assets that are not currently being used because of excess capacity. d. All of these assets qualify for interest cost capitalization.

a. assets under construction for a company's own use.

31. When cash is involved in an exchange having commercial substance. a. gains or losses are recognized in their entirety. b. a gain or loss is computed by comparing the fair value of the asset received with the fair value of the asset given up. c. only gains should be recognized. d. only losses should be recognized.

a. gains or losses are recognized in their entirety.

37. Accounting recognition should be given to the gain realized on a non-monetary exchange of plant assets except when the exchange has a. no commercial substance and additional cash is paid. b. commercial substance and additional cash is received. c. commercial substance and additional cash is paid. d. All of these cause recognition of a gain.

a. no commercial substance and additional cash is paid.

18. When funds are borrowed to pay for construction of assets that qualify for capitalization of interest, the excess funds not needed to pay for construction may be temporarily invested in interest-bearing securities. Interest earned on these temporary investments should be a. offset against interest cost incurred during construction. b. used to increase the cost of assets being constructed. c. multiplied by an appropriate interest rate to determine the amount of interest to be capitalized. d. recognized as revenue of the period.

a. offset against interest cost incurred during construction.

22. Interest revenue earned on specific borrowings for qualifying assets a. reduces the cost of the qualifying asset. b. reduces interest expense reported on the income statement. c. increases equity in the period earned. d. None of these answer choices are correct.

a. reduces the cost of the qualifying asset.

15. The period of time during which interest must be capitalized ends when a. the asset is substantially complete and ready for its intended use. b. no further interest cost is being incurred. c. the asset is abandoned, sold, or fully depreciated. d. the activities that are necessary to get the asset ready for its intended use have begun.

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

32. The cost of a non-monetary asset acquired in exchange for another non-monetary asset and the exchange has commercial substance is usually recorded at a. the fair value of the asset given up, and a gain or loss is recognized. b. the fair value of the asset given up, and a gain but not a loss may be recognized. c. the fair value of the asset received if it is equally reliable as the fair value of the asset given up. d. either the fair value of the asset given up or the asset received, whichever one results in the largest gain (smallest loss) to the company.

a. the fair value of the asset given up, and a gain or loss is recognized.

8. 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.

a. the machinery account.

17. Construction of a qualifying asset is started on April 1 and finished on December 1. The fraction used to multiply an expenditure made on April 1 to find weighted-average accumulated expenditures is a. 8/8. b. 8/12. c. 9/12. d. 11/12.

b. 8/12.

2. 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. Long-term in nature

b. Acquired for resale

24. Which of the following is not true with regard to the accounting for government grants? a. Assets may be recorded at fair value or nominal cost. b. Companies may use either the capital or income approach to account for the asset and the grant. c. Companies may apply the income approach either by recording the grant as deferred revenue or as an adjustment to the asset. d. None of these answer choices are correct.

b. Companies may use either the capital or income approach to account for the asset and the grant.

28. If the cost of the asset is recorded net of the government grant, a. equity will likely be overstated. b. liabilities will likely be overstated. c. assets will likely be understated. d. revenues will likely be understated.

c. assets will likely be understated.

16. Which of the following statements is true regarding capitalization of interest? a. Interest cost capitalized in connection with the purchase of land to be used as a building site should be debited to the land account and not to the building account. b. The amount of interest cost capitalized during the period should not exceed the actual interest cost incurred. c. When excess borrowed funds not immediately needed for construction are temporarily invested, any interest earned should be recorded as interest revenue. d. The minimum amount of interest to be capitalized is determined by multiplying a weighted average interest rate by the amount of average accumulated expenditures on qualifying assets during the period.

b. The amount of interest cost capitalized during the period should not exceed the actual interest cost incurred.

14. When computing the amount of interest cost to be capitalized, the concept of "avoidable interest" refers to a. the total interest cost actually incurred. b. a cost of capital charge for equity. c. that portion of total interest cost which would not have been incurred if expenditures for asset construction had not been made. d. that portion of average accumulated expenditures on which no interest cost was incurred.

b. a cost of capital charge for equity.

25. The account Deferred Grant Revenue is classified as a. a separate component of shareholders' equity. b. a non-current liability. c. Other income and expense. d. Revenue.

b. a non-current liability.

33. Ringler Corporation exchanges one plant asset for a similar plant asset and gives cash in the exchange. The exchange is not expected to cause a material change in the future cash flows for either entity. If a gain on the disposal of the old asset is indicated, the gain will a. be reported in the Other income and expense section of the income statement. b. effectively reduce the amount to be recorded as the cost of the new asset. c. effectively increase the amount to be recorded as the cost of the new asset. d. be credited directly to the retained earnings account.

b. effectively reduce the amount to be recorded as the cost of the new asset.

9. Fences and parking lots are reported on the statement of financial position as a. current assets. b. land improvements. c. land. d. property and equipment.

b. land improvements.

30. Which of the following non-monetary exchange transactions has commercial substance? a. Exchange of assets with no difference in future cash flows. b. Exchange of products by companies in the same line of business with no difference in future cash flows. c. Exchange of assets with a difference in future cash flows. d. Exchange of an equivalent interest in similar productive assets that causes the companies involved to remain in essentially the same economic position.

c. Exchange of assets with a difference in future cash flows.

42. In accounting for plant assets, which of the following outlays made subsequent to acquisition should be fully expensed in the period the expenditure is made? a. Expenditure made to increase the efficiency or effectiveness of an existing asset b. Expenditure made to extend the useful life of an existing asset beyond the time frame originally anticipated c. Expenditure made to maintain an existing asset so that it can function in the manner intended d. Expenditure made to add new asset services

c. Expenditure made to maintain an existing asset so that it can function in the manner intended

. Which of the following statements about involuntary conversions is false? a. An involuntary conversion may result from condemnation or fire. b. The gain or loss from an involuntary conversion is reported in other income and expense on the income statement. c. The gain or loss from an involuntary conversion should not be recognized when the company reinvests in replacement assets. d. None of these answer choices are false.

c. The gain or loss from an involuntary conversion should not be recognized when the company reinvests in replacement assets.

20. Which of the following is not a condition that must be satisfied before interest capitalization can begin on a qualifying asset? a. Interest cost is being incurred. b. Expenditures for the assets have been made. c. The interest rate is equal to or greater than the company's cost of capital. d. Activities that are necessary to get the asset ready for its intended use are in progress.

c. The interest rate is equal to or greater than the company's cost of capital.

38. For a non-monetary exchange of plant assets, accounting recognition should not be given to a. a loss when the exchange has no commercial substance. b. a gain when the exchange has commercial substance. c. a gain when the exchange has no commercial substance. d. a loss when the exchange has commercial substance.

c. a gain when the exchange has no commercial substance.

4. 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 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.

c. capitalized as part of the cost of the land.

39. An improvement made to a machine increased its fair value and its production capacity by 25% without extending the machine's useful life. The cost of the improvement should be a. expensed. b. debited to accumulated depreciation. c. capitalized in the machinery account. d. allocated between accumulated depreciation and the machinery account.

c. capitalized in the machinery account.

5. 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.

c. costs of improvements with limited lives.

29. Which of the following is true regarding the alternative ways to apply the income approach to accounting of resources acquired through government grants? a. expenses will be higher and net income lower if the grant is recorded as deferred revenue. b. expenses will be higher and net income lower if the grant is accounted for as an adjustment to the asset. c. depreciation expense will be higher if the grant is recorded as deferred revenue, but net income will be the same under the two alternatives. d. depreciation expense will be higher if the grant is recorded as an adjustment to the asset, but net income will be the same under the two alternatives.

c. depreciation expense will be higher if the grant is recorded as deferred revenue, but net income will be the same under the two alternatives.

6. 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.

c. private driveways and parking lots.

23. If a government entity provides an interest free loan to a company and the company accounts for the grant using the deferred revenue approach, a. no interest expense will be recorded. b. the interest element is initially recorded as Discount on Notes Payable. c. the interest element is amortized to Deferred Grant Revenue over the term of the loan. d. All of these answer choices are correct.

c. the interest element is amortized to Deferred Grant Revenue over the term of the loan.

34. Plant assets purchased on long-term credit contracts should be accounted for at a. the total value of the future payments. b. the future amount of the future payments. c. the present value of the future payments. d. none of these answer choices are correct.

c. the present value of the future payments.

3. Which of these is not a major characteristic of a plant asset? a. Possesses physical substance b. Acquired for use in operations c. Long-term in nature d. All of these are major characteristics of a plant asset.

d. All of these are major characteristics of a plant asset.

12. Which of the following assets do not qualify for capitalization of interest costs incurred during construction of the assets? a. Assets under construction for a company's own use. b. Assets intended for sale or lease that are produced as discrete projects. c. Assets financed through the issuance of long-term debt. d. Assets not currently undergoing the activities necessary to prepare them for their intended use.

d. Assets not currently undergoing the activities necessary to prepare them for their intended use.

11. 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

d. Materials, labor, and overhead

40. Which of the following is a capital expenditure? a. Payment of an account payable b. Retirement of bonds payable c. Payment of income taxes d. None of these answer choices are correct

d. None of these answer choices are correct

1. 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 answer choices are correct.

d. None of these answer choices are correct.

19. Interest cost that is capitalized should a. be written off over the remaining term of the debt. b. be accumulated in a separate deferred charge account and written off equally over a 40-year period. c. not be written off until the related asset is fully depreciated or disposed of. d. None of these answer choices are correct.

d. None of these answer choices are correct.

27. Which of the following is required by IFRS? a. Resources acquired through government grants must be recorded at cost. b. Resources acquired through government grants must be recorded at fair value. c. Resources acquired through government grants must be accounted for using the capital approach. d. Resources acquired through government grants must be accounted for using the income approach.

d. Resources acquired through government grants must be accounted for using the income approach.

10. 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.

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

43. An expenditure made in connection with a machine being used by a company should be a. expensed immediately if it merely extends the useful life but does not improve the quality. b. expensed immediately if it merely improves the quality but does not extend the useful life. c. capitalized if it maintains the machine in normal operating condition. d. capitalized if it increases the quantity of units produced by the machine.

d. capitalized if it increases the quantity of units produced by the machine.

36. When a closely held corporation issues preference shares for land, the land should be recorded at the a. total par value of the shares issued. b. total book value of the shares issued. c. total liquidating value of the shares issued. d. fair value of the land.

d. fair value of the land.

35. When a plant asset is acquired by issuance of ordinary shares, the cost of the plant asset is properly measured by the a. par value of the shares. b. stated value of the shares. c. book value of the shares. d. fair value of the shares.

d. fair value of the shares.

44. The sale of a depreciable asset resulting in a loss indicates that the proceeds from the sale were a. less than current fair value. b. greater than cost. c. greater than book value. d. less than book value.

d. less than book value.

7. 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.

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